What To Look Out For When Building Credit

What To Look Out For When Building Credit
<a href="https://pixabay.com/users/RJA1988/">RJA1988</a> / Pixabay

Whether you’ve just started working on your credit or you are recovering from financial troubles, a good credit history is essential for a stable financial future.

Your overall credit rating is affected by a long list of things. The most notable ones include previous searches for credit, length of credit history, debt burden, and most notably payment history.

The number of things that can affect your score negatively is much bigger than the ones that can do so positively.

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Most banks in the US rely on your FICO score to judge your creditworthiness. This score can be lowered by things like missed or late payments, bankruptcies, judgements, repossessions, or foreclosures.

Starting Out

When you’re first getting started with a new credit card, it’s important to pick the right one for your situation. Different cards have different fees, interests, and repayment options. Speak to other people in a similar situation to you and search online credit card reviews to educate yourself on what’s out there. With the right card, you’ll have a much better chance of building your credit.


One of the most important steps to building credit is to prioritise repaying what you owe. Set up a payment plan that you are confident you can maintain, and only then look at taking other steps to improve your rating.


Having different types of credit cards is beneficial to your credit score, as long as you pay them back responsibly. Alternatively, if you miss your payments on multiple cards, your credit score will be detrimentally effected.

Therefore, it’s important to ensure you are financially stable to keep up with the repayments before you think about diversifying.

Long-term Effort

Another aspect of building credit is one that you unfortunately cannot influence – time. The longer you have and maintain your bank accounts and credit cards, the better your credit score will be – provided you’ve made repayments on time.

Building credit can take years – especially if you are working your way up from some bad financial decisions. It’s important to be patient and see it as a long-term goal.

Banks also tend to like consistency. Living in the same place for several years and having a steady employment history is important. Therefore, if you put in the effort long-term, your credit score will be rewarded.

Request Credit Reports

If you haven’t yet, be sure to request a copy of your credit report. You are entitled to a free one every 12 months, and several companies like Experian or Equifax offer additional services that can help you monitor your score.

In these reports, you can find hints as to how to improve your specific situation. Be sure to check that all the information in the report is correct. If some of your personal information is wrong, this may be harming your score without you knowing.

To conclude, you should expect your credit building efforts to take a year or more. Continuously monitor your score, make repayments on time, and don’t be discouraged by small setbacks. Building a stable financial future is very much a long-term effort and worth investing the time into.

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Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at [email protected]

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