How to Build Credit

Credit is crucial. In showing a bank or lender a solid credit score, you are proving that you are financially responsible and can be trusted with money. So if you don't have credit, what are you waiting for? Building a strong credit score takes years, and if you ever hope to borrow money (for a home, a car, a business, etc.), you will need good credit to qualify for a respectable loan with a low interest rate. Plus, these days, credit scores are even used to evaluate apartment applicants and prospective employees. For help getting started, use the tips below to learn how to build credit.

How to Build Credit

Get a credit card. 

You might consider using a starter credit card, which is designed for amateurs. This is a great way to build credit from scratch. Most starter credit cards come with a lower credit limit, higher interest rates, and no rewards (or very limited rewards). Student credit cards are similar.

You could also use a secured credit card, which is similar to a debit card in that you must have enough money in your bank account to cover the entire credit limit. For example, if you want to spend $1,000, you will need to have $1,000 in your corresponding bank account. Some secured credit cards require a cash deposit instead. If you use a secured credit card, be sure that the company reports to credit bureaus so that you can build up your credit.

Use your credit card responsibly. 

Once you have a credit card, use it responsibly and pay the entire bill on time each month. This will help you prove your creditworthiness. Contrary to popular belief, you do not need to carry a balance to build credit. If you have trouble paying your bill on time, create an alert on your phone or calendar. You could also use an automatic bill payment system, which many credit cards offer. Finally, don't use your entire credit limit. Using only 1-30% of your limit will improve your credit score by showing that you don't rely upon the money.

Use a credit builder loan. 

Although a credit card is the most common way to build credit, it isn't the only way. You might also consider getting a credit builder loan. This is a small and unique loan in which the loaned funds (typically offered by a credit union or bank) are placed in an interest-bearing account. The borrower makes monthly payments on the loan until they have paid it off entirely. At that point, the funds are given to the consumer with the accumulated interest. Again, be sure that the credit union involved is sending the loan information to credit bureaus.

Follow basic tips. 

Finally, follow some basic credit-building tips. For example, avoid opening many new credit cards at once, as all the "hard pulls" on your credit reports will lower your score. Next, keep your accounts open as long as possible. Unless your credit card has an annual fee, there is no reason to close it. Keep it active to extend the length of your payment history and credit utilization. Finally, be sure to review your credit reports annually to check for errors and discrepancies.

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Unfortunately, while building good credit takes time, ruining your credit can happen quickly. So before you dive in head-first, form good habits and take your time. When it comes to credit, slow and steady wins the race.

Now that you know how to build credit, are you interested in opening a new credit card? You'll be pleased to hear that BluCurrent Credit Union offers two great options: the VISA® Platinum and the VISA® Classic. The Platinum offers rewards on every purchase you make, and the Classic comes with no annual fee, no cash advance fee, and no balance fee! To learn more about our credit cards, please click here, and to open an account, visit any of our branches. You can also give us a call at 417-887-1983 or e-mail us at info@blucurrent.org for more information.