How to Build Good Credit

While the benefits of good credit are well-known, the costs of bad credit can be greater than you think. If you’re able to get approved for a loan at all, you’ll pay more in interest – and, in many cases – a lot more.

Bad credit can also prevent you from buying a home, car or even that new smartphone. It can place you in a high-risk category for insurance and even keep you from getting your dream job. Bad credit is also inconvenient. Without a credit card, it can be difficult to make online purchases or rent a car during your family vacation. Worst of all, bad credit can cost thousands of dollars over your lifetime.

The credit decisions you make when you’re young and just getting started out can affect you for several years. That’s why it’s crucial to understand the credit decision process and how it impacts you.

Credit decisions involve several elements, including:

  • your ability to repay the debt (whether your income is enough to cover your expenses)
  • collateral (for example, the lender typically holds the title as collateral when you get a car loan)
  • and, most importantly, your character

Your character in a credit situation is simply the likelihood you will fulfill your promise to repay a given debt. Remember, when you sign a contract for a loan, financing agreement or any credit, you’re giving your word you will repay it. Lenders want to know that you keep your promises if they give you credit.

Lenders often find out whether a person pays debts or not by looking at that person’s credit file. Among other things, your file shows how long you’ve had credit, how much you’ve borrowed and how well you’ve paid it back. It also shows your credit inquiries – or requests for credit. If you shop for a car and allow five car dealerships to pull your credit, five inquiries will show. Too many inquiries can hurt your credit.

Your credit file also includes a credit score. The higher your score, the more likely you are to pay your debts. Your score does not reflect which debts you pay first, pay last, or don’t pay at all. It is based on all of the credit history in your file.

Keep in mind, credit is judged over time. Everyone has good times and bad times, and it is how you handle bad times that tells your story. If times are tight and you manage to pay your bills, your credit remains strong. Taking out too much credit can make this very hard to do.

Generally, credit should be used with caution to avoid getting into a situation where you can’t pay it back. If something beyond your control does get in the way of your ability to repay what you owe, try to resolve the problem by asking the lender for help. Keeping the lines of communication open makes it more likely that a lender will work with you through tough times.

How can I establish or rebuild my credit?

The key to building good credit is paying your bills on time. If you don’t pay a bill, it can wind up in collections, or a creditor might start a lawsuit against you to collect the debt. Collections and public records, such as lawsuits, can show on your credit history as well.

If you’re trying to establish or rebuild your credit, expect to start small. That’s because creditors have no way to tell if you’ll pay your bills or not. It also means they will want to lower their risk if they give you credit. In an upcoming article, we’ll look at some specific ways that you can begin to establish or rebuild your credit.


Dan Wienckoski, COO, joined NCP Finance, the premier Credit Service Organization (CSO) lender in the country, in October of 2010. Mr. Wienckoski is a CPA and has extensive financial and operations management experience. In addition to holding operational positions in a credit union, a commercial bank, a finance company and leasing companies, Mr. Wienckoski worked in the short-term lending industry as a chief financial officer and vice president of business systems integration. He has a B.A. degree in both finance and accounting from Washington State University.

NCP Finance creates value and provides service excellence to CSOs. For reference, visit NCP at

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