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How to Build Credit

Teenage boy looking at phone and credit card.

You’ve probably heard endlessly about just how important it is to have credit and a long credit history…but how do you get credit? When you start out and have absolutely no credit history, you don’t have a bad credit score, you don’t have one at all. If you were to have your credit report pulled, it might say that your score is missing or invalid. Don’t panic – this is normal. Everyone at some point started out where you are.

So…how DOES someone establish and build credit history? Here are a few tips for how you can start building credit that’ll lead you to the wonderful land of the exceptional credit score.

Open a Line of Credit

Right off the bat, know that building credit history absolutely does NOT have to mean going into a bunch of debt! It’s actually possible to build credit history without carrying large debt balances and paying a bunch of interest.

Creditors want to see your credit history to determine how risky it would be for them to extend credit to you. But here’s the Catch-22: How can you have a credit history without having credit extended to you? Similar to getting an internship to start building job experience, there are credit building products that are specifically designed to help you start building credit history, with protections in place to help minimize the creditor’s risk.

One way to build credit is a by getting a secured credit card. A secured credit card requires a cash security deposit to open the account. This security deposit reduces the risk to the lender because if you don’t pay your card, they have the money from your deposit to pay.

Another credit builder product is a credit builder loan. This is a type of loan where the money you borrowed is held in an account while you make payments. Generally, you can’t access the money until you have fully repaid the loan. Essentially you are building a savings while making payments to increase your credit score.

If someone you trust has a credit card in their name, they could add you as an authorized user to start building some credit history. Typically, accounts where you are an owner have more impact on your credit, but being added as an authorized user can be a good way to start establishing some history, especially if you’re able to start early.

Use That Credit Wisely

Once you have a line of credit, it’s time to make smart decisions. Take these steps to get that credit score moving up, up, up!

  • Pay Your Bills on Time. Your payment history is one of the most significant factors affecting your credit score. Make it a priority to pay all of your bills, including rent, utilities, and student loans, on time each month.
  • Don’t Max Out Your Card. Part of the credit score calculation is called credit utilization. This is the ratio of how much credit debt you have to your credit limit, as a percentage. Try to keep this under 30%.
  • Limit Your Lines of Credit. Each time you apply for a new line of credit, the potential creditor checks your credit, called a “hard inquiry” or “hard pull.” This automatically lowers your score for a short time, so only apply for new credit when you’re sure you need and want it.

Building credit takes time and patience, but by following these steps and practicing responsible financial habits, you can establish a solid credit history and pave the way for a brighter financial future. Remember, building good credit is not just about getting approved for loans and credit cards—it’s about demonstrating your ability to manage credit responsibly and achieve your long-term financial goals.

If you need help building your credit history, Jeanne D’Arc Credit Union has many financial wellness tools, free for our members. Find out which Jeanne D’Arc credit option is right for you.