Building credit is essential to living in modern American society. A credit score is used to assess one's responsibility in repaying their debt. A credit score reflects one's credit history, and the numerical value of the score is a function of one's fidelity. A credit history is a detailed record or report on the repayment schedule of one's debts. Basically, your numerical credit score represents your "risk value" -- if a financial institution is going to lend you the money to purchase a high dollar item, they are more likely to "feel safer" lending their money to the person who demonstrates a "lower risk" of ignoring their repayment obligations.

Institutions evaluate credit history, and thus credit scores, when determining how much money and at what percentag rate you are eligible for. Financial institutions use your credit history and your credit scores to finance high dollar items, such as a home, a car, or furniture. While using cash is ultimately the best way to pay items, using cash does not assist in building credit.

One must begin building their credit sooner or later. (The reason why credit must be built is because not everyone has the cash or savings to purchase a house or a car.) Since time is a variable in determining your credit score (time means history), the longer that one demonstrates their fidelity in their repayment obligations, the higher one's credit score is. In other words, always keep the credit card that you have had for the longest period of time, even if it's not used.

Since repayment fidelity is an essential determinate of one's credit score, the dollar amount of purchases plays a significantly less role. In other words, building credit does not necessarily mean purchasing and paying on high dollar amount items. From the point of view of the financial institutions, it means more that one repays the debts that one has. Therefore, if one desires to build their credit, one can purchase low dollar amount items such as CDs and DVDs -- even items that cost less than $1.00. Using your credit card to purchase a single item that costs less than $10.00, and quickly paying back that $10.00, is an easy and inexpensive way of building a credit history. Begin small.

A credit score also factors in the variables of one's income and one's existing debt obligations. Those who demonstrate (1.) fidelity in their repayment obligations, (2.) a low debt-to-income ratio, and (3.) fewer lines of credit, are more likely to qualify for more money lent at a lower percentage rate. In other words, as a rule, one should be earning more money than one sends out on bills. Where possible, discontinue the use of specialied gas cards or specialized department store cards in lieu of one card that offers nice rewards for its use. You're more apt to earn rewards by using one or two cards more frequently than by using dozens of cards less frequently.

Always and forever zero out your credit card balance on a monthly basis. This demonstrates your financial responsibility to the future lenders who will query your credit history.

Obtain a credit report, on an annual basis, to eliminate errors that lower your credit score. This is especially important for a child who shares the name of one of their parents. All credit disputes should be hand written and sent in using certified mail.