Building Your Credit Score For The First Time

Building your credit is an important financial step, especially if you’re trying to establish a credit history for the future. A good credit score is crucial to financial success. A solid credit history can help you: 

• Get approved for credit cards 
• Get a cell phone plan 
• Rent an apartment or house
• Obtain lower rates on car and home insurance premiums 
• Get certain jobs 
• Get a loan to buy a house or car
• Get the best interest rates and terms on credit cards and loans 
• And more! 

Building credit is different than improving credit. It’s best to start building credit as soon as you can so you have a strong credit history when you need it.

So, how do you build credit? There’s no magic formula or a quick way to establish a credit score. But with some patience, discipline, and a few tips, you can build your credit history and enjoy many financial milestones, such as buying a car or purchasing a home. 

How Do You Build Credit?

The best ways to build credit focus on the five factors that impact your credit score and history with the major credit bureaus. Lenders look at your credit score and history.

The five factors and their weight are:

• Payment history – 35%
• Amounts owed versus available credit – 30%
• Length of credit history – 15%
• Credit mix – 10%
• New credit or recent inquiries – 10%

The longer you’ve had a history of making on-time payments, a low utilization rate of your available credit limit, how long you’ve had your credit accounts, and the types of credit you have, the better your credit score and credit will be.

Because payment history and utilization rates are the most important factors in your credit history, focusing on these when you start building credit can have the biggest effect.

Best Ways to Build Credit

While it can take longer to establish a strong credit score, building your credit fast can be simple and easy with the right strategies. You can start building credit by making smart moves with credit cards, loans, and even your rent and other bills.

Enroll in Credit Monitoring

Building your credit starts with knowing and understanding your score, creating goals, and then monitoring your credit as you take steps to improve it. And if you bank with Arkansas Federal, you have access to a free credit monitoring service, Credit IQ, housed within digital banking. You can get real-time notifications on credit changes and monitor your progress as often as needed without impacting your credit score. Again, it’s free and can help you gain a better understanding of your score.  

Apply for a Credit Builder Loan

A credit builder loan is a great way to establish your credit without a credit card or to diversify your credit mix to build your credit history. Unlike a traditional loan, the funds are not immediately released to you. Instead, the loan amount is deposited into a savings account, and the funds are placed on hold. Then as you pay on the loan, your timely monthly payments are reported to the major credit bureaus, helping you establish a positive credit history. Once the loan is paid in full, the loan’s original amount and any interest you earned are yours to keep! 

Open a Secure Credit Card

If you have no credit history, lenders may not approve you for a regular credit card. A secure credit card can help you build your credit history so you can be approved for other credit cards in the future by building up a credit report. It works just like a regular credit card, except you need a cash deposit upfront that typically matches your spending limit.  

For example, if you provide $500 upfront, your limit on the card is usually $500. Think of it like a security deposit you pay a landlord before renting an apartment. The deposit serves as protection for the issuer if you don’t pay back what is charged to the card. The lender protects itself while still letting you build up your credit history by reporting your credit usage to the major credit bureaus each month. It’s a win-win!  

Keep in mind, though, that it still works like a regular credit card. You can incur interest if you carry a balance. So, it’s best to use it each month to help your credit score, but only if you can pay the balance in full. As a reminder, you do not have to carry a balance month-to-month to build a good credit score. It’s about using credit responsibly. 

What happens to that $500 deposit? Use the card responsibly, and you can improve your credit enough to qualify for an unsecured card (one that doesn’t require a deposit). At this point, you can open an unsecured credit card and get your initial deposit back when you close the secured card account. There are lots of credit cards that can help you build your credit to choose from.

Get Added as an Authorized User on Someone Else’s Credit Card  

Lastly, you may want to get added as an authorized user on a family member’s credit card. Authorized users build credit, even if they’re not using the card themselves. If you have a family member with good to excellent credit, ask if they’re willing to add you as an authorized user. If so, the card issuer will send the primary cardholder a card with your name on it. However, the primary cardholder is still responsible for paying all charges on the account, not you.  

This is a great option because card issuers often report the full payment history of the card, including the names of each cardholder, to the credit bureaus. Even if you never use the card, the effect on your credit is the same. Becoming an authorized user can be one of the fastest ways to build credit because it can provide years of strong credit history. 

The one caveat here is pretty straightforward: make sure the person you’re asking to add you to their card has a good credit score and makes payments on time. If their credit score declines due to activity associated with the card, your credit score will likely fall too. 

Add Non-Traditional Accounts to Your Credit Report

Another tool for building good credit may be one you haven’t considered before. Rent can help build credit, but it does require a few extra steps. Some credit-building programs advise using rent payments if you cannot qualify for other tools, like a secure card or credit builder loan.

Although you can’t report paying rent yourself to the credit bureaus, you can use a service that reports rent, utilities, and subscriptions to build your credit. Some landlords participate in rent reporting services, or you can set one up. If you’re starting to build credit, this can be an additional tactic to establish your credit history quickly because payment history makes up 35% of your credit score. 

Start Building Credit Responsibly

After choosing which strategies you will use to build your credit, it’s important to stick with your financial plans and use your credit responsibly. 

• Make on-time payments, setting up auto-pay so you don’t miss it
• Start small and pay off your balance every month
• Keep your balance low to build a history of credit utilization rates
• Monitor your credit score monthly with Credit IQ
• Check your credit report annually

With Arkansas Federal, you also have access to tools like Credit IQ to monitor your credit score as well as fraud protections to keep your credit history safe as you build your credit.

Get Started Building Credit Today

Building credit doesn’t have to be scary or overwhelming, and you’re not in it alone. As a member of Arkansas Federal, we’ll walk alongside you and help you evaluate your unique financial situation. From there, we’ll look for ways to help build or establish your credit. 

Drop by your local branch or call us at 800.456.3000 today for your complimentary financial checkup and tips!  

And if you haven’t already done so, enroll in Credit IQ. It’s free and easy to do so. Just log in to digital banking, select Credit IQ, and follow the steps.