Building a positive credit history will save you money in long run

Not many people know that individuals who manage their credit use wisely and who maintain outstanding credit histories and credit scores will save approximately $250,000 in interest fees and rates over the course of a lifetime. A solid credit background refers generally to making a series of financial choices that result in positive growth of one's credit score.

For active duty and reserve service members and for many Civil Service employees and Government Contract personnel, a good credit history and score are crucial to obtaining or maintaining security clearances. In order to achieve a good credit score, one needs to understand the elements that credit scores are based on. Credit (FICO) scores are calculated and based on ratings in five general categories:

Payment history - 35 percent

Amounts owed - 30 percent

Length of credit history - 15 percent

New credit - 10 percent

Types of credit used - 10 percent

Payment history

Always make sure that the minimum payment is paid before the due date on any bill. You can do this however you wish, but whenever you receive a bill with a minimum payment, make sure you pay that much before the bill is due. Make sure, if mailing, to allow time to reach its designation. Timely payments can also help you save on finance charges.

Amounts owed

The actual dollar amount isn't as important as the percentage of your total credit limit that is used on your last set of statements; the lower the percentage, the better. The way to keep this part low is to simply avoid carrying large balances on a card; pay it in full each month.

Length of credit history

Your credit history generally starts the first time you acquire a credit card or other type of credit. This is why it's generally a bad idea to cancel your oldest credit card or credit account.

Keep your oldest card or account open and if not using it, keep it locked up somewhere safe. Remember, however, that accounts can be closed by some creditors if not used periodically, so if necessary, charge to the account and pay in full when the bill comes in.

New credit

Whenever you first apply for a source of credit, it results in what is known as a "hard inquiry" on your credit report. This is why it's a bad idea to apply for several cards or loan applications all at once - your better solution is to apply for just one. Never apply for a credit card on a whim, even if it is to get that "immediate discount" when shopping in the store.

Types of credit

Basically, if you have a lot of revolving credit (more than 30 percent of your annual salary), it will hurt your credit report.

Keep the total amount of your credit cards' available credit low the best way to do this is, again, stick with just one or two cards.

Credit companies like to keep lifting your credit limit if you carry a balance on the card but pay it off faithfully, so if you have several cards, the limits could skyrocket and end up hurting you.

Ideally, a consumer would have, at the most, one gas card, one retail card (Sears, Kohls, or JC Penney) and perhaps one or two major bank cards with all of their accounts kept at a zero or very minimal balance.

Recipe for building credit that works in all respects:

Apply for just one credit card. Spend the time to research a number of them by visiting the sites of various credit card companies (Citi, Chase, Bank of America, etc.). Find one card with a rate and a bonus program that seems to fit your budget and apply for it.

Don't worry about a low credit limit that's good. Read all the fine print and be aware of any hidden fees or charges.

Use your new credit card for only small purchases for a year.

Each month, buy two or three small things on it that you could have otherwise paid in cash.

Don't use it to finance things you can't afford. When you make the purchase, set the cash aside or bury the amount in your check book ledger so you can pay the card balance in full when the bill arrives.

Pay off the balance in full by the time the next payment is due. You can do this by making small payments online throughout the month if you wish, or by writing a check or making an on-line payment for the entire balance all at once. Try and avoid carrying a balance from month to month.

After six months, request a credit limit increase, but don't go above 20 percent of your gross salary.

If you've used the card and paid it back, the creditor will usually be glad to bump up your credit line.

Monitor your credit report.

Take advantage of your free credit report per credit reporting agency per year to keep an eye on what is showing on your account.

Sometimes mistakes happen and someone's information gets there by mistake. Sometimes identify theft occurs.

The sooner you are able to act on it, the easier and quicker it is to get the matter cleared up.

You can actually stagger your credit reports by getting one from a different credit reporting company each quarter.

That way you are seeing current info every 4 months.

If you follow these steps and avoid carrying a balance on your card, your credit will start to steadily improve. Stick with making small purchases and paying off the balance monthly.

The end result will be you having pretty solid credit background the next time you apply for a loan or attempt to make a purchase on credit.

Lastly, individuals who have a negative credit history should avoid falling into the "credit repair" trap.

The only things that will fix a less than desirable credit history and score are time and effort.

By effort, individuals with negative credit history and scores should exercise good consumer habits, pay their bills on time and work diligently to make wise choices regarding use of credit.

Individuals may contact their Command Financial Specialist (CFS) or the Personal Financial Manager at the Fleet and Family Support Center for any additional information, resources or guidance regarding positive steps for credit management.

Looking for a money management class? Call the Fleet and Family Support Center.