A good credit rating is important to your future. If you want to ever buy a house, a car, or in some cases, even a stereo, you will need a good credit rating. It is a lot easier to ruin your credit than it is to improve it, let alone build it. So, how do you build a good credit rating? The following are steps to build a good credit rating:

First, establish credit:

This is the first step of building your good credit. You can't build good credit if you do not have any credit. You have to start with the basics. People think the best way to build credit is to open a credit card, when in reality, the best way to establish credit is to simply open a checking account and savings account. This basic step is often overlooked by people seeking to build credit.

Opening checking and savings account is really the best option because it is one of the few things you can do as a minor to start building a financial history. So, you can start building credit young. While you can't get a credit card in your own name until you're 18, most banks will let you open an account.

Usually, if you have been a customer at a bank for a while, they will be more open to giving you loans because they know your financial situation better, have worked with you before, and want to keep you as a customer. It is a perfect jumping off point.

Second, know what credit ratings are based on:

If you want to build a good credit rating, you have to have more than just a basic understanding of credit scoring. It is much like anything else in life, if you want to be good at football, one of the first steps is learning about the game and how it works. The same is true for how credit works, and how it is scored.

You need to know that the two most important factors in your score are:

1. Whether you pay your bills on time.
2. How much of your available credit you actually use.

Let's take a closer look at these two factors, why they are important to you, and of course why they are important to lending institutions and the credit bureaus that score your credit.

Paying your bills on time is a huge step toward building a good credit rating. Not paying your bills on time is a sure way to screw up your credit. So, it's essential that you pay all your bills on time, all the time. If you have struggled with this in the past, and are working to build a good credit rating now, start now. If you are forgetful more than you are broke, a good option so that you do not forget to pay your bills is to set up automatic payments or reminder systems so that you're never, ever late. Even one missed payment can make your credit drop considerably, and it can take several years (in some cases seven) for that payment to be off your credit report. This means that one screw up can make a difference in your rates, loan amounts, and of course credit score for years to come. So, do not take on more debts than you can handle, and make sure that you are organized enough to pay on time. If you can't do this, you should not be buying things on credit.

Lenders look at missed payments as a big neon warning sign that you do not take your debt seriously, and they will be less likely to lend to you, and your credit ratings will drop because you will be deemed a higher risk.

Of course the next thing you need to remember when it comes to building a good credit rating is keeping your balances low. You also don't want to max out any of your credit cards, lines of credit, etc. or even get close. Keeping your credit use to less than 30% of your credit limits will help you get the best possible credit score -- and should help keep you from getting over your head in debt, as well. If you ever exceed 50% it would be wise to talk to your lender and see if they will raise your limit.

People who are close to their limits look like people who can't control finances, and abuse their credit use. They look like people who do not put restraints on themselves when it comes to credit use.

Your overall debt to available credit is looked at, as well as each individual creditor. So, this means that simply transferring high balances from one card to another is not going to help your credit score out much.

One other tidbit of information that is important to consider when trying to build a good credit rating is that you don't need to carry a balance on a credit card to have a good credit score. Many people wake the mistake of thinking they have to carry debt to get credit, this is not necessarily true, you just have to have people willing to loan you money, and you have to borrow it on occasion, and pay it back. Paying your bill off in full is the best way to keep your finances in shape and build your credit at the same time. If you get in the habit of not paying off your bills, your credit may fail because you will be drowning in debt. So, instead, pay it off every month, and establish good credit.


Third, do not make the common mistakes that tear credit down, instead of building it:

If you want o build a good credit rating you have to recognize the universal philosophy of credit: It is easier to tear down then to build. So, what you do build, you do not want to tear down. This is the best way to get your credit rating up there, and keep it there.

Here are some things you should do avoid common credit mistakes:

Check your credit report

You'll first want to see what, if anything, lenders are saying about you. You also want to make sure what they are reporting is true. If you do not look at what they say, you can't be sure they are reporting things correctly. For example, if they report you paid late, but you can show you did not, you would need to know they reported that to be able to fix it.

There are three major credit reporting bureaus: Equifax, Experian and Trans Union. You can get your credit report from any or all of these. In fact, law mandates that each of these bureaus gives you one free credit report each year, you just have to request it. You can do this by going to www.annualcreditreport.com. You can request one from each at the same time, or you can check it every few months by staggering your requests.

Credit reports are used to create your credit score. A credit score is the same thing as your credit rating. It is a three-digit number lenders typically use to gauge your creditworthiness. Lenders also may look at the report itself, as may the landlords, employers and insurance companies who use credit to evaluate applicants. This is why credit ratings are so important. Check your credit report often so that you can make sure things are being reported accurately, and that your identity has not been stolen.

Part of building a good credit rating is making sure it is actually your credit that is being rated. For example, somebody else's information could be mixed in with your report, either through a credit bureau mistake or because of identity theft; i.e. someone using your personal information to open bogus accounts.