Did you know you can build your credit score without having a credit card, but having a credit card or credit history is the main measure of creditworthiness? There are several components that go into calculating your FICO score. A FICO score is a measure of consumer credit risk. As with most lending institutions, the less chance, the better interest rate usually.

It would be best if you started building a credit history, and here are five basic rules to doing so.

    1. If you have a loan, be sure to make your payments on time, every time. One-third of your credit score is based on your payment history. So, this one is vital to maintain. You will be dinged if you aren’t making your payments on time. Demonstrate your ability to manage credit by maintaining a pristine payment history.
    2. Don’t use all the credit lines. If you have available credit, don’t use all of it. If you max out your credit, lenders see this as a red flag. They believe you are headed to financial trouble. Show lenders you are a responsible consumer by not maxing out your credit lines. This adds up to 30% of your credit score.
    3. Credit history is another component lenders use to determine creditworthiness. They want to see that you have been consistently responsible over time. Keep open any credit cards you have as long as you can. Time is on your side here, but don’t open too many cards all at once. This is also a red flag to lenders and a signal you may be in over your head. Make a small charge on the card and pay it off when the bill is due.
    4. Review your credit score often to watch for errors. Many people fall victim to identity theft each year. Some people have cards opened in their name without their knowledge. Fraudulent charges can be the downfall of a credit score.
    5. Pay down debt quickly. When you carry debt from month to month, you end up paying interest and fees. Pay your debt down quickly (see item 2) and improve your credit utilization while saving yourself interest and boosting your on-time payments (see item 1).

Having a credit card can be convenient (not having to go to the bank all the time), but it can also be costly. If you don’t pay your credit cards and loans on time, this will lower your credit score, causing you to have a higher interest rate over time. If your credit score drops, look into it immediately. If there is an error or an account you don’t recognize, report it right away. You can repair bad credit, but if it’s a mistake, why should you have to? Pay down your debt quickly. Don’t carry a balance if you don’t have to. Be sure to maintain a good credit score by following the guidelines listed above. If you think you are getting into financial trouble, talk to an advisor. They may be able to help you.