Building a Good Credit Score from Scratch

The elusive credit score... you know it’s important, but what actually is it and how does it affect you? We’re here to explain how you can build a good credit score from scratch! 

Become an Authorized User 

Before you open your own credit card, becoming an authorized user on a family member’s card is a great place to start! As an authorized user, your name is attached to their credit card and their payment history is added to your credit files. Be sure to choose someone who has a good track record of paying their bills on time, so their on-time payments help improve your score. You don’t need to use or even have the credit card!  

Ask the primary cardholder to find out whether the card issuer reports authorized user activity to the credit bureaus. That activity generally is reported, but you’ll want to make sure — otherwise, your credit-building efforts may be wasted. 

You should come to an agreement on whether and how you’ll use the card before you’re added as an authorized user. If you would like to use their credit card, we recommend you’re prepared to help pay off what you charge to the card. It’s the kind thing to do for your family members and it also teaches you financial responsibility! 

Start with a Secured Credit Card 

If you’re building your credit score from scratch, you’ll likely need to start with a secured credit card. A secured card is backed by a cash deposit you make upfront; the deposit amount is usually the same as your credit limit. Secured credit cards aren’t meant to be used forever. The purpose of a secured card is to build your credit enough to qualify for an unsecured card — a card without a deposit and with better benefits. Choose a secured card with a low annual fee and make sure it reports payment data to all three credit bureaus: Equifax, Experian and TransUnion. 

• Keep Your Credit Cards Open - Unless your annual fees are through the roof, it’s a good idea to keep your credit card open. Credit bureaus will count a closed credit card against you, so you can pay off the card and leave it open, but don’t close it. 
• Limit Credit Card Applications - Opening multiple credits cards in a short time period will also be flagged by the major credit bureaus. While not always the case, they see this as a sign that someone is unable to maintain an income to keep up with expenses and pay off debt, so your credit score will go down. It’s recommended to wait at least six months in between credit card applications. 
• Set Up Automatic Payments - Paying your loans and credit cards regularly and on time is one of the best ways to build a positive credit. Making these timely payments shows the credit bureaus that you can maintain enough income to pay off debts and are capable of paying them on time which improves your score. 

Take Out a Starter Loan 

Typically, the money you borrow is held by the lender in an account and not released to you until the loan is repaid. It’s a forced savings program of sorts, and your payments are reported to credit bureaus.  

Another option: If you have money deposited in a bank or credit union, ask them about a secured loan for credit-building. With these, the collateral is money in your account or certificate of deposit. The interest rate is typically a bit higher than the interest you're earning on the account, but it may be significantly lower than your other options. 

Are you ready to start building your credit score? Talk to our lenders today to discuss the option that works best for you!

Exchange Bank of Northeast Missouri 

Member FDIC 

Equal Housing Lender 

NMLS# 483241