When it comes to your finances, your credit score is one of the most important numbers in your life. Your credit score communicates how reliable you are with consistently meeting your financial obligations: whether it be paying your bills, paying off your credit cards or paying off loans. This number influences the way banks, credit card companies, and even landlords will perceive how much they can trust you to pay backhome loans, auto loans, and credit cards.

Credit scores can range anywhere from 300 (the lowest) to 850 (the highest, most optimal credit score). The higher your credit score, the more qualified you are to get a credit card or take out a loan. But if you’re just starting to handle your own finances, how are you supposed to gain any type of credit history to begin with? What helps build credit in the first place? In this post, we’ll be sharing a few things that can help you build your credit from scratch and be well on your way to qualifying for all the opportunities you’ll need good credit for.

Credit cards

Credit cards can be a great tool for building your credit and showing financial institutions how well you can manage your finances. If you’re a college student, getting a student credit card is a good first step in this process. These credit cards can often use your grades or other indicators to qualify you for a starter credit card with a low initial limit. Otherwise, a secured credit card is the way to go for establishing credit. A secured credit card is a credit card that requires you to put in a certain amount of money as a security deposit. The security deposit is kept by the credit card issuer and used as an incentive for the user to make payments on time, every time or the deposit could be taken away. Hickory Point Bank has several secured card offerings, including one for students, that you can find here.

Once you have a credit card, you can start using it and then paying it off regularly (at least once per month) to build credit. When you’re just starting out, it’s a good idea to use your credit card sparingly and make sure you can afford what you charge on it. A great tip for this is to choose a specific expense for your card and only use it for that. For example, only use your card for gas. This way, you can start building credit and gradually learn how to use it responsibly. Then make sure you pay it off consistently and on time, and you’ll be building your credit. It should take about three to six months of this for your initial credit score to formulate.

Loans

Loans are another option for proving that you can be trusted to manage your money and make payments. The best loan for continuing to build credit is a personal loan. A personal loan is an amount of money that a financial institution lends to you, and in turn you must pay a certain amount back each month until you’ve paid it back. Click here to learn more about Hickory Point Bank’s personal loan offerings.

If you’ve been building your credit with a credit card for long enough, you’ll probably be able to qualify for a small personal loan. The next step is to prove that you’re reliable and pay it off on time (and pay more than the minimum payments, if possible). This process should take about six to twelve months to impactyour credit score.

Healthy habits for good credit

Make payments on time – and don’t miss a payment!

An important aspect of building and improving your credit is maintaining several healthy habits. Firstly, make all your payments on time, every single time. Missing a payment or paying late harms your credit score, so making sure you are reliable and punctual is essential. Setting reminders for yourself and even setting up auto-payments for your credit cards will ensure that you never miss a payment.

Keep your credit card accounts open

Another good habit is to keep your credit cards, even if there’s one you don’t use often. You may be tempted to close out the account of that one credit card you never use anymore. Why keep it if you’re not using it? Well, there’s one good reason why you should keep it. Closing a credit card account can damage your credit score, so your best option may be to use the card every once in a while, so it isn’t closed due to inactivity. Unless you have a strong reason to close the account, keeping it open won’t negatively affect your credit score. In fact, credit rating agencies look at your longest open credit card as a factor when calculating your credit score. The longer the better!

Don’t use too much of your available credit

Make sure you’re utilizing under 30% of your line of credit as a best practice. For instance, if you have a $1,000 credit limit, and you keep a balance of $300 then your credit utilization is 30%.Using most or all of the credit you have available can have a negative impact on your credit score. For instance, if your limit is $1,000 and your balance is $900, this high utilization will negatively impact your score. So especially when you’re starting to build credit, keeping utilization under 30% will give you the peace of mind that you’re not using too much to damage your score.

Monitor your score and adjust as needed

Another great habit to create is checking your credit score often. It helps to know how your credit is doing so that you can make necessary corrections depending on how it fluctuates. It’s a common misconception that checking your credit score will hurt it. There is some truth to that, but there are different kinds of credit checks.

Doing a “soft credit check” which means checking it yourself through a credit bureau won’t change your credit score. On the other hand, a “hard credit check” is when a financial institution pulls your credit report to check it. This type of inquiry can impact your credit score, but a hard credit check only happens on occasions that you apply for a loan, credit card, or new apartment. If you’d like to get a formal hard credit report from a credit reporting agency like Experian, Equifax, or Transunion, each of these bureaus will provide a free credit report once each year.

Pay more than the minimum payments

In addition to making sure your payments are on time, paying more than the minimum payment is a good practice. If you’re able to, exceeding your minimum payments is great for your credit health. This shows that you can do more than the bare minimum to pay off your credit cards or loans, and it will onlyserve to improve your credit score.

There are so many actionable ways to build your credit when you’re just starting out, as well as ways to continue to improve your credit score as you go. Whether you are just beginning to build your credit, or you’re wondering how to improve your credit score, these tips should have you well on your way to better credit health.

We hope you’ll find these credit building tips to be helpful on your journey to building good credit! Make sure to subscribe to Hickory Point Bank’s On Point Blog for more financial tips and updates.