5 Ways to Establish Credit + 3 Things to Avoid
Building credit takes time, but good financial habits can help you establish a strong credit history.
Here are five ways to get started, plus three common mistakes to avoid.
1. Pay Your Bills on Time
Paying your bills on time is one of the best things you can do to establish credit.
Pro Tip: Set up automatic payments on your accounts to ensure you never miss a payment. Just be careful not to overdraw your checking account!
2. Ask Family to Let You Be an Authorized User
One option to establish credit is to become an authorized user on a trusted family member’s credit card. A quick word of warning: if the cardholder has problems making payments, it will affect your credit score, so find someone you know who has a good payment history.
Pro Tip: Before becoming an authorized user, have the account holder check with the credit card issuer to see if they report to all three credit bureaus.
3. Get a Credit Card in Your Name
Once you’re ready to take the next step, consider applying for a credit card of your own.
Pro Tip: Be smart and pay your balance due in full each month. That not only helps your credit score, but it saves you money on interest fees.
4. Be Mindful of Your Credit Use
How much revolving credit you have makes up about 30% of your credit score and it can have a big impact. With all your revolving credit, such as credit cards, try to keep your use below 30% combined on all of it.
Pro Tip: If you have a $500 credit limit, try to utilize less than $150.
5. Check Your Credit Reports
Your credit report has information about your credit accounts and payment activity. That data is what influences your credit score. Regularly review your credit reports and if you find any inaccuracies, contact the credit bureau to correct them.
Pro Tip: Remember to get your free credit report for each of the three nationwide credit bureaus by visiting annualcreditreport.com!
3 Things to Avoid When Building Credit
Don’t Miss Payments
Late payments can quickly become costly and may also hurt your credit.
If you miss a payment, try to pay it before it becomes 30 days late. At that point, the lender may report it to the credit bureaus, which can hurt your credit history and credit score. Late payments can also lead to fees and additional interest. If you think you may miss a payment, contact your credit card issuer as soon as possible. They may be able to discuss payment options with you. If you allow an account to become seriously delinquent or go into collections it can have an even greater impact on your credit and remain on your credit report for years.
Don’t Rely on Cash Advances
A credit card cash advance may be convenient, but it can be an expensive way to borrow. Cash advances often come with fees, higher interest rates and interest that begins accruing immediately.
When possible, consider charging the expense directly to your card or exploring other borrowing options, such as a personal loan, that may offer more favorable terms.
Don’t Carry Large High-Interest Balances
Carrying a large balance on a high-interest credit card can make your purchases much more expensive over time. It can also increase your credit utilization, which may negatively affect your credit score.
Whenever possible, pay your statement balance in full each month. If you do carry a balance, focus on paying it down as quickly as your budget allows to reduce the amount of interest you pay.
Remember: Establishing strong credit doesn’t happen overnight, but the habits you build today can make a meaningful difference over time. If you have questions about building your credit and the tools we have available to help, connect with a banker at your local branch.