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Finance 101

Building Credit

Posted on August 12, 2014 by Jake Ward

Establishing good credit is essential. If you want to buy a car, rent an apartment, and in some cases, even land a new job, a strong credit history is needed. So how do you begin building good credit? Here are some easy ways to build credit, with and without a credit card.

Building Credit Without Any Credit Cards.

  • Use your monthly payments as a reference.
    Pay household bills such as utilities, such as power, heat, cell phone, cable, and water bills in your name. These recurring payments suggest responsibility and financial stability. Late payments are likely to show on your credit report, negatively affecting your credit score.
  • Establish bank accounts.
    Even though savings and checking accounts are not considered credit, many lenders can see bank accounts as a sign of security. Withdrawals and deposits, without bounced checks or outstanding balances, shows you can manage money properly. These accounts are an easy way to build a good base.
  • Become an authorized user on someone's credit card.
    If you are using someone else's credit card, look into becoming an authorized user on their card. Just realize that by doing so, you share the actions of the other user. If they have a high balance or make late payments, it will appear as if you do as well. Of course, if they have good credit practices, that reflects positively on you also.
  • Borrow against your savings.
    If you are struggling to find a loan because of previous credit history, a Share Secured Loan from R.I.A. FCU could be the answer. There is no credit report required, and these loans are funded immediately. With a Share Secured loan, you pledge the funds in your savings account or CD as collateral, and in return you receive an exceptionally loan rate with flexible repayment terms. If you fail to make your loan payments, these funds would be used to repay the loan. Of course, Share Secured loans are reported to the credit bureaus, so a share secured loan can establish or rebuild your credit. It's a win-win. Build your credit score and spend the money you need on projects and personal items.

Building Credit with a Credit Card

  • Pay bills on time every month.
    This sounds simple enough. But consistently paying your credit card bills shows that you are aware and can handle financial burdens. If you can, pay the amount in full every month. But if you cannot, pay a set amount every month. Avoid late payments, by setting up an automatic payment. Use this to make sure that only the amount you want to pay is processed without the risk of a mail mix-up or misplaced reminder.
  • Plan to only use your card for payments that you can afford.
    Make sure you can afford whatever you charge to your credit card. It will make paying the bill easy because you already know you have the money that was charged. You do not need a balance on your card in order to build credit. A little discipline goes a long way.
  • Open a joint credit card.
    Unlike being an authorized member of someone else's account, this is actually your account shared with another person. You have your own separate card. This is good for young adults just starting out because you can join with someone who has a proven financial history as well as take joint responsibility for the debt accrued.

Other Factors.

  • Stay where you are.
    Many places looking at your credit score will also look at other factors as well. If you constantly move you could be viewed as more risky to potential lenders. By keeping a job for a few years, and staying in the same house or apartment you will look more stable.
  • Research the best cards.
    When starting out, it's important that your first card is the right card. Look for a credit card supported by one of the major credit card providers (i.e. VISA, Mastercard, American Express, or Discover). Try to find a card with low or no monthly fees or annual payments. Of course, also be sure the card you choose comes with a low interest rate. R.I.A. has great cards with low rates and no annual fees. Check them out here.

With all of these tips and tricks, you are on your way to a higher credit score. Any Questions? Stop in to one of R.I.A. Federal Credit Union's branches and learn about our Secured VISA and other ways to build a strong credit history and a better financial future. The credit union offers several credit card options to meet your financial needs. Find out more and apply online.