A Beginner’s Guide to Credit Building

Inevitably, the topic of credit scores appears at some point in life. Like all new things, the concept feels foreign at first. No matter what your current stage in life, it’s never too late to get started, opening doors to better loan rates, apartment rentals, and even, in some cases, job opportunities. Today’s as good a time as any to start building a strong credit foundation. So, let’s dive in!
 

The Credit Basics

A credit score represents an individual’s reliability to manage borrowed money, measured on a scale from 300 to 850. A good way to think of it is as your financial report card. Your score is calculated based on the information in your credit report, which is a detailed history of your borrowing and payment behaviors.

So why does it matter? If you’re looking for a loan, an apartment, or a job, your credit score could play a part. Lenders, landlords, and, in some cases, employers check applicants’ credit to predict how responsible they’ll be. As your score increases, you’ll appear more trustworthy, which translates to better opportunities across the board!
 

Impactful Credit Metrics

Wondering what all goes into your credit score? It’s a combination of several metrics, with some having more impact than others. For now, let’s focus on the top two factors to kick-start your credit-building journey.
 

• Payment History: Hands down the most crucial element, accounting for the largest portion of your score. Paying your bills on time consistently is the single best thing you can do for your credit.
• Credit Utilization: Second in line, this refers to how much of your available credit you're using. A good rule of thumb is to keep any credit card balance below 30% of your limit. For example, if you have a $1,000 limit, carry a balance of $300 or less.

Want a more in-depth look? Find it here!

Start Building Where You’re At

If you're brand new to the credit-building game, our team has a few suggestions on where to start.
 

• Secured Credit Card: This type of credit card is more accessible for beginners because it requires a refundable cash deposit (which typically becomes your limit) that acts as collateral, making it easy for your credit union to say yes to your application. You’ll use it like any other credit card, helping you boost your score with on-time payments and low utilization.
• Small Auto Loan: Another path to building credit is through a small auto loan. This route typically requires some money down and a co-signer with established credit. 

Consistency is key. You don't need a high credit limit or expensive loan to build credit effectively.

Get Smart with Your Habits

Building credit and developing good habits go hand in hand. Here are a few that will be essential as you get started.
 

• Pay on Time, Every Time. Even one missed payment can damage your credit score when you’re starting. Pro tip: Set up automatic payments so you never miss a due date.
• Keep Your Balance Low. Figure out what 30% of your credit limit is and try to stick below that.
• Track Your Progress. BHFCU members have access to the treasure trove that is our Credit Monitoring tool. Learn more about your credit metrics at a glance and actions you can take to improve your score, among other things.
• Celebrate the Wins. Big or small, a win is a win. Did we mention you can set goals and track your progress with Credit Monitoring, too?
• Be Patient. Building solid credit takes time, period. The most important thing you can do is start and keep working at it, one opportunity at a time.

You’ve Got This

The adage ‘it’s a marathon, not a sprint’ applies perfectly to the process of credit building. Once started, many see meaningful improvement within 6 - 12 months of consistent action. We’re here to help when you’re ready!

There’s more where that came from. Check out our other credit-related blogs here.