The first step you should take to build your credit, according to experts

Taking the first step in building your credit is critical ‘if you intend to purchase a home or car with credit, or otherwise intend to apply for credit in the future,’ one expert said

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After some financial ups and downs over the past few years, you’re ready to start a journey toward building your credit history and credit scores.

For some consumers, that first step may be an overwhelming one, as one in six consumers doesn’t have any mainstream credit, such as a credit card, mortgage or auto loan, according to a 2023 survey from the Federal Deposit Insurance Corporation.

Though there’s plenty of advice out there about what you can do to build or fix your credit, you should always start with the same first move: Obtaining a copy of your credit report and poring over it to find errors that could be lowering your score, said Ali Zane, CEO at Imax Credit Repair & Identity Theft Firm.

“An example of an initial step in the credit-building process would be to obtain credit reports from all three bureaus - Equifax, Experian, and TransUnion - and perform an exhaustive line-by-line analysis for mistakes, fraudulent accounts, and reporting accuracy,” Zane told The Independent by email.

If you find errors, you can dispute them through the credit bureau, which will work with you to verify the error and make corrections to your report, if necessary.

Building your credit score plays a pivotal role in a wide range of credit products, including whether or not you’re approved for an auto loan for your dream car (Getty Images)

Aside from checking your credit report for errors, looking over it line by line gives you a good picture of your credit health because it will show you the number of accounts you’ve opened and closed, your payment history for each account, your loan and credit card balances and other vital information.

You can request your credit report from each of the three “bureaus”, or companies that compile information about your credit reports, and provide credit scores based on your report: Equifax, Experian and TransUnion.

Additionally, you can receive all three credit reports for free at once from AnnualCreditReport.com. Other sites, such as Credit Karma, offer free access to your credit reports and scores from Equifax and TransUnion.

The credit score that often comes with your credit report is important, too, as your score often plays an important role in your approval and resulting interest rates for products like credit cards and loans.

“Many of your financial partners have invested heavily in creating credit score displays that not only show you a score but also explain (and sometimes even simulate how to improve) your credit score,” said Jennifer White, senior director of banking and payments intelligence at consumer research firm J.D. Power. “There are other sources like the credit bureaus as well, but start with a reputable and trusted source - and for most people, that means your bank or credit card company.”

The Consumer Financial Protection Bureau, the agency that implements and enforces federal laws meant to protect consumers.

“It’s important to review your credit reports from the three nationwide consumer reporting companies—Equifax, TransUnion, and Experian—every twelve months to ensure they are accurate and complete,” the bureau said. “This is especially important if you intend to purchase a home or car with credit, or otherwise intend to apply for credit in the future.”

You checked your credit report; now what?

If you’ve already taken the recommended first step to improve your credit and need a second step, there’s one credit practice that can help you build a baseline for a solid credit score: on-time payments.

Small steps you take to build your credit score now can help you get lower rates on home loans in the future, potentially saving you thousands in interest payments (Getty Images)

Paying your credit cards, loans and other lending products on time is the single most important aspect of your credit score: it accounts for 35 percent of all the factors calculated in your score, according to FICO, a company that generates credit scores. In fact, your payment history is the “strongest predictor of the likelihood that you’ll pay all debts as agreed to,” FICO said.

So, do whatever you can to make sure your payments are never late, White told The Independent in an email.

“Set calendar reminders when payments are due or set up autopay for at least the minimum balance due,” White said. “You can always pay more if you are able, but don't miss the minimum payment."

There’s no set number of payments that will magically boost your score; instead, it’s about consistency, White said. “Paying on time is the most powerful thing you can do,” she said.

If you don’t have a credit card or loan you can use to build up a solid payment history, consider asking your landlord if they can report your rent payments to credit bureaus, said Jeremy Schachter, branch manager at mortgage lender Fairway Independent Mortgage.

“If you are renting, you can have your landlord provide your payment history as well,” Schachter told The Independent in an email. “Normally, I see this on large rental properties and not mom and pop owners.”

Schachter recommends doing the same for your utility companies and your cell phone company.