Build your credit. Build your future.
Building and maintaining credit is a journey, not a destination. Let’s make it a successful one – together.
Learning about credit can seem intimidating, but we're with you each step of the way. Follow these four steps to build a credit score you can be proud of!
Step 1: Learn about credit
The basics
Credit (noun): The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.
Put simply, credit is financial trust. Financial institutions want to be sure they're paid back for the money they lend, determining your financial trust by looking at your credit report – the record of all your credit history.
Credit scores range from 300-850. The higher the score, the more trust you have built, and the more eligible you will be to borrow money in the future. To build credit, you need to prove you have the funds and discipline needed to consistently make your payments on time.
Types of credit
Credit can be broken down into two categories: closed-end credit and open-end credit.
Closed-end credit is a traditional, one-time loan that gives you a set amount of funds all at once. The amount you pay normally remains the same during your repayment period.
Open-end credit, though, is like a credit card. It's a revolving credit account with a predetermined limit. You borrow what you need when you need it, then pay it back to advance more funds in the future.
The importance of credit scores
Your credit score can have a big impact on your financial future. Once you start building your score, you'll want to take steps every day to ensure that your credit is growing safely – all while avoiding the mistakes that can damage it.
Your credit score can determine your:
- Eligibility to obtain loans and credit
- Interest rates (how much you pay to have the loan)
- Employment opportunities
- Eligibility for an apartment or home
- Insurance coverage
What makes up your credit score?
Making sense of payments
Your payments are a combination of principal and interest. The principal is the amount you initially borrow, and the interest is how much the financial institution charges you for letting you borrow the funds. Interest rates play a large part in calculating your payment amount and are determined by both your credit score and loan type.
Step 2: Choose a product
Now that you understand the basics and importance of having good credit, are you ready to start building it?
Credit building options to consider
Secured Credit Card
With a secured credit card, you pledge an amount of your own savings to be put on hold – or locked – in your account that matches your credit limit. For example, a $500 credit limit would mean that you volunteer $500 of your savings.
This pledge provides a sense of security to the financial institution that they will be paid back in case you stop making your payments. After a time – perhaps a year or two – in which you consistently make your payments, you may be eligible to reapply for an unsecured card and have your pledge removed from its hold.
Credit Builder Loan
Unlike a secured credit card where you need to provide the money upfront, a credit rebuilder is a secured, closed-end loan that puts the money directly into your savings account. The catch, however, is that these funds are on hold until you make payments – ensuring your lender that they can recover the principal in case you default.
As you make your monthly payments, the portion of your payment that is applied to your principal – rather than interest – is released in the account for you to use. For example, if your monthly payment is $50 and you owe $5 in interest, your payment will result in $45 being released into your savings.
Joint Credit
Depending on your specific circumstances, you may choose to open an unsecured credit card or loan that would require a cosigner. This should be someone you know and trust – like a relative or close friend – who has a solid credit history. This person acts as a "backup" for your loan in case you cannot pay your debt. Once you have a solid credit history of your own, you may be able to reapply and remove the cosigner from your account.
Step 3: Build it up
Slow and steady is the key. You can't rush the credit building process, but you can make sure you are making wise decisions with your money, making your payments on time, and living within your budget each month.
Speaking of which, try filling out the budget worksheet at the bottom of the page!
Step 4: Achieve your goal
What can you get from having a great credit score? All of the things we mentioned before, plus increased confidence and financial flexibility! You can check your credit score through online and mobile banking, and you can also view your credit report once per year for free by visiting annualcreditreport.com. It's worth the effort!
Additional credit tips and reminders
Best practices to HELP your score:
- On-time payments – pay all bills by (or before) the due date
- Pay in full or more than the minimum balance
- Make payments online or early to guarantee they're paid on time
- Avoid closing credit cards – pay them off completely and cut up the card
Actions that HURT your score
- Missing payments – regardless of dollar amount, it will take 24 months to restore your credit with just one late payment
- Maxing out your credit cards – try to stay below 30% of your limit
- Closing credit cards
- Opening many accounts in a short period of time
- Borrowing from finance companies
Ready to get started?
Stop by your local office or call us at 800.242.2120. One of our experts can help you start building a strong financial future.
Budget worksheet
Click here to view or print the helpful budget worksheet!
