Your credit history can help you obtain a loan, secure a credit card and open an account with a utility company. Prospective employers sometimes look at your credit history as well. In addition, some of your bills can even be based on your credit history and current credit score. Auto insurance rates can be higher for people with limited or bad credit. Therefore, it is crucial to maintain good credit ratings.

Building Credit

Building credit is an important step toward financial security. There are several good ways to begin building a foundation for a credit history. If you have no credit history, you will want to begin by applying for a credit card or a small loan through a local bank. When you charge money on the credit card, you should pay the balance in full at the end of the month. This will help you establish a history of timely payments. It will also keep your credit ratio at a good percentage. You do not want to use all of the credit you have available, and you certainly do not want to be late on payments. Following these simple rules will give you a good financial start.

• Hands On Banking: A guide to building credit; includes worksheets to help users learn the proper ways to build credit.
• Financial Literacy Now: Building a financial history is imperative in order to obtain mortgages or other large loans. Financial literacy now gives advice on building credit.
• U.S. Bank Visa: U.S. bank offers six pieces of information about building a good credit history along with links to credit tools.
• American Public Media: Financial tips on rebuilding credit from Marketplace Money’s Chris Farrell.
• Building Credit for Life: A complete guide to building a credit history the right way.
• Utah State University: Tips for starting over also apply to building a foundation for a great credit history.
• North Dakota State University: How to build credit correctly. Features tips on establishing a credit history.

Using Credit

It is okay to use credit, but you should not use credit without weighing the pros and cons of each purchase. When you first start building your credit history, you are simply creating a record on your credit file. You will want to make occasional purchases and then pay them off. It is good to do this with items that you would buy anyway. Instead of paying cash for that $30 worth of gasoline, charge it. Now, tuck the $30 in cash aside to pay off the bill at the end of the month. This is a good way to use credit without getting in over your head.

Once your history is built up, your credit score will rise. This will allow you the possibility of obtaining higher credit lines, such as those for a mortgage or vehicle. Take care not to overdo it. Do not charge more than you can comfortably afford. Use money management tools to help you plan a budget so your credit line continues to build in a positive direction.

• Federal Reserve: The Federal Reserve speaks out about using credit wisely.
• State of Indiana on Credit: The state of Indiana provides tips on credit card usage.
• Mapping Your Future: This guide helps users determine how to best use a credit card.
• Tomorrow’s Money: Advice on using credit—from the National Association of State Treasurer’s Foundation.
• Education Finance Council: The EFC makes it easy for consumers to learn the basics of credit. Includes tips on when you should and should not use credit as well as information on budgeting.
• University of Minnesota: Using credit can be a good thing if you do it the right way. UMN offers counsel on the topic.

Credit Report Services

You are entitled to receive a copy of your credit report anytime a company pulls the report for the purposes of extending credit to you. This report will show record of the lines of credit you have (or previously had) open along with the total credit amount, the current balance and the record of timely or late payments. Remember, you do not want multiple companies to pull your report several times in a short period, as this will make it seem as if you are attempting to overextend yourself. Doing so can keep you from gaining future credit.

You can also request a copy of your credit report from one of the three major reporting agencies: Experian, Equifax or TransUnion. The Federal Trade Commission guarantees your right to one free credit report annually. Watch out for other companies that are offering free credit reports. These are usually attached to a credit-monitoring program that will charge you monthly fees. The worst-case scenario is a “company” that offers a free report, but then uses your personal information for deceitful purposes.

FICO is the Fair Isaac Corporation. This company computes your credit score. They base the score on factors such as your open credit lines, your credit history, your monthly payments and pay-offs and a variety of other factor. This score is used by many companies when making a decision of whether or not to extend credit to you.

• Experian: Credit education for businesses and consumers. Experian is one of the three trusted credit-reporting agencies.
• Equifax: A credit reporting agency that provides credit-profiling services.
• TransUnion: TransUnion handles credit reporting and offers other assistance services to consumers.
• FICO: The Fair Isaac Corporation analyzes consumer credit reports in order to provide a credit score for an individual’s report.
• FTC: The FTC explains your rights under the FACT (Fair and Accurate Credit Transactions) Act.

Money Management Resources

• Iowa State University: This links page provides many resources for helping you manage your money.
• My Money: The U.S. Government provides tools and resources for helping people manage and understand their finances.
• USDA: Money Management: The USDA presents a guide to financial security that includes links to various resources.
• Managing Money from AARP: A worksheet to help you assess your own money management skills.
• CMB Foundation: Links to numerous publications that will guide you in money management techniques.
• Citi: A guide to budgeting, spending, saving and using credit wisely.
• CNN: 23 lessons to help you manage your money properly.

Once you begin building up a positive credit record, you need to maintain it. Keeping small balances is okay, but paying off your balances monthly is better. Do not make impulse purchases or spend money on items that you don’t need or can’t afford.