How to Build Credit
The world runs on credit. It allows us to fund our businesses, buy our homes, pay our college tuition bills, and purchase new cars.
But using credit can also be dangerous—at least if you’re not careful about how much you borrow and when you plan to pay it back.
Do you want to make sure your credit habits are in check? Here’s what you need to know.
What Is Credit and Why Do You Need It?
Put simply, credit allows you to purchase something now, but pay for it later. The repayment can either be done in installments (meaning you’ll pay a set amount each month until the debt has been cleared) or in a revolving fashion. This means you’ll pay back small increments over time (usually a minimum payment that depends on how high your balance is), while still continuing to utilize the credit and charge more purchases to the account.
Credit comes in many forms, including:
- Credit cards
- Loans (auto loans, mortgages, student loans, business loans, etc.)
- Lines of credit (Home Equity Lines of Credit, business lines of credit, etc.)
- Service credit (when you receive a service like water or electricity in good faith and then pay for your usage after the fact)
Not everyone uses credit, but most people will need access to it at some point in life, whether to buy a car, purchase a home, or pay for college tuition. Credit usually comes with interest attached to it, which is the cost you bear for borrowing the money. Credit cards tend to have the highest interest rates of all forms of credit.
Accessing & Improving Your Credit
Your access to credit—as well as how much you can borrow from creditors—depends largely on your credit score. These scores range anywhere from 300 to 850, and the better your score, the more credit you’ll have access to.
You can check your score by using any of these free resources. Many banks also include free credit score monitoring with their services. If you’re unhappy with your credit score, you can improve it by:
- Paying your bills on time, every time
- Paying down your existing debts and balances
- Having longstanding accounts in good health
- Settling any accounts that have gone to collections
Pulling your annual credit report (this is different from your credit score) and alerting the credit bureau of any errors you find can also help improve your score. You should look for unknown accounts or debts, as this could be a sign of potential identity theft. All Americans are entitled to a free credit report annually from all three credit bureaus: Experian, TransUnion and Equifax.
The Bigger Picture
Once you know your score and have a clear picture of your personal credit, speak to a banker in your area about your financial goals and the credit opportunities that could help you reach them.
- Bev O'shea (March 28, 2019). How to Improve Your Credit by 100 Points in 3 Steps. Retrieved from https://www.nerdwallet.com/blog/finance/raise-credit-score-fast/
- J.T. Genter (January 15, 2019). 18 Ways to Check Your Credit Score for Absolutely Free. Retrieved from https://thepointsguy.com/guide/check-credit-score-for-free/
- Lindsay Konsko (March 27, 2019). Revolving Credit vs. Installment Credit: What’s the Difference? Retrieved from https://www.nerdwallet.com/blog/finance/revolving-debt-worse-credit-score-installment-debt/