How to Build Credit

So, you want to build credit? Maybe you have zero credit history and are just getting started or perhaps you want to add to your existing credit history. Either way, we’re here to help.

Many different companies create credit scores, so there isn’t just one credit score per person. One of the most popular credit scores, used by around 90% of lenders, is the FICO^® Score. This score is determined by algorithms that calculate information found in your credit report.

You can learn more about FICO^® Scores by visiting their website.

Getting started

First, start with opening a checking account at your local bank. Once you establish a financial relationship with your bank, you’ll begin to build trust and credit history.

Next, apply for a credit card through your bank and be diligent about paying your monthly bill in full each period. If you miss a payment, this could harm your credit score and history. If this happens, call your creditor immediately and pay the balance in full.

If you’re unable to secure a credit card on your own, have a trusted family member, or friend co-sign with you. This process means you can take advantage of their good credit while building your credit history.

Pro tip: Be cautious; the second party will be responsible if you miss a payment, so choosing a trustworthy co-signer is important.

Keep in mind that late payments can stay on your credit report for up to seven years. That’s why it’s crucial to consistently pay your bills on time and in full to ensure you’re building good credit.

Mixing it up

Similar to co-signing, you could also become an authorized user on someone else’s account. For example, if you have a trusted friend or family member with a long history of excellent credit, you could ask them to add you to their account as an authorized user. You don’t even have to use their account or credit cards. Just having your name on their account will add to your credit history and positively impact your credit score.

Retail credit cards

Let’s talk about retail credit cards. Are they worth it? In short, one or two retail credit cards can be a good thing if you pay your bills on time and in full each period. When used responsibly, they can help you build good credit history over time.

Pro tip: You can usually save 10-20% on your first purchase by applying for a retail credit card.

But, if you miss a payment or have multiple retail credit cards, this could cause you to appear desperate for credit through the eyes of creditors.

It’s a good practice to keep your cards open, so you retain that credit limit. Closing a card can temporarily deduct points from your credit score. It’s also worth noting that your monthly income level should be greater than the debt you owe. Each time you apply for a new credit card, your credit history is checked, resulting in docked points on your overall credit score. In this scenario, less is more.

Asking for a credit increase

After you have a couple of years of responsible credit history and you’ve been paying your bills on time and in full each month, you can ask your creditor if they can increase your credit limit. You can request a credit increase by giving your creditor a call and asking that they avoid a hard credit inquiry that can temporarily lower your overall credit score by a few points. It’s also possible to negotiate your rate with your creditor.  This is where having an ongoing relationship with your bank can benefit you.

Final thoughts

With a bit of research, you’ll find there are many ways to increase your credit score and build good credit history. If you have questions about opening a checking account or applying for a credit card, you can reach out to us by visiting our website.