How to Build Credit
How to Build Credit
Having a good credit score can improve your financial wellness and open more doors in the financial world. Building credit when you are just starting out or rebuilding after a default takes time and effort. Establishing a positive credit history that shows repayment responsibility is the first place to start.
Credit cards can be an excellent tool for building credit and showing your creditworthiness. On top of convenience, some cards offer perks such as reward points. Along with a credit card comes financial responsibility for repaying that debt.
The most important way to built credit is to make all your payments on time each month. With one-third of your credit score based entirely on your payment history, your credit score will suffer from missed or late payments.
What can you do
If you are starting out on your own, it can be tough to initially build credit. You might be wondering, “How can I get approved for a credit card or a personal loan to start building your credit if you don’t have a credit history?”
Ideas to help build your credit:
- Sign up for a secure credit card. This is where you would put a deposit upfront, and if you pay off your credit card in full month after month, you get your deposit back when you close your account.
- Become an authorized user on another credit card. See if you can be added to a family member or significant other’s account who already has established credit.
- Get a credit builder loan. Think of this like a forced saving account. You would borrow money from a lender, they hold that money into an account, and once you complete all payments the money gets released to you. Your payments get reported to credit bureaus, therefore helping you to build credit.
The point of having a credit score is to show a lender how trustworthy you are. They want to know if they give you a loan for that $15,000 car, can you be trusted to repay it in full? Having good money management skills is crucial for keeping your credit score high once you start to build it up.
A few good pieces of advice would be to always live within your means, make 100% of your payments on time and if you use credit cards, to only use about 30% of your total limit. This helps keep your credit utilization low.
Building a credit history can take some time. Unfortunately, your score won’t jump 100 points overnight, but by following good money management practices you’ll see your score increase. While we wouldn’t recommend checking your score every single day, it’s a good idea to check on your credit score every now and then. Get a free credit report today, because your credit matters.
Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO Score than FICO Score 8, or another type of credit score altogether. Learn More