Easy Ways to Build Credit

Building credit takes time, consistency, and responsible financial habits. Whether you’re establishing credit for the first time or working to rebuild it, Frandsen Bank & Trust is here to help. This guide outlines simple, practical ways to begin building credit with confidence and set a strong foundation for your financial future.

The Basics of a Credit Report

A credit report is a detailed statement prepared by the credit bureaus outlining credit history. The report includes four categories: personal information, credit accounts, public records, and inquiries.

• Personal Information Personal information is used to confirm you are who you say you are by listing name(s), address, date of birth, social security number, phone number, and employment history.

• Credit Accounts This report identifies information regarding loans, such as the type of account, lender name, loan amount, remaining balance, payment history, and loan status.

• Public Records Public records contain negative information that could affect future credit inquiries: foreclosures, bankruptcies, legal judgements, tax liens, and unpaid child support.

• Inquiries The last section of the report catalogs when an individual applied for a loan. Applications include credit cards, credit increases, mortgage loans, car loans, and attempting to open accounts on telephone and internet services.

This report information is used to calculate a credit score. Creditors and lenders evaluate an individual’s creditworthiness by reviewing the information in their credit report. It also plays a key role in lending decisions and helps determine eligibility, interest rates, and terms.

Improving Your Credit History

As your credit accounts and history are a key part of your credit score, consistent and regular activity can demonstrate your ability to manage money and debt responsibly. Here are a few ways to get started to build or improve your credit.

Become an Authorized User

What is an authorized user? An authorized user is an individual who has been permitted access to a primary account holder’s credit card account. Authorized users are not responsible for accrued credit balances. However, if the primary account holder is delinquent in repayment, it may affect the authorized user’s credit report. Becoming an authorized user can be a low-risk way to build credit history, provided the primary is financially responsible.

Apply for a Credit Card

There are different types of credit cards, and qualifications vary depending on the applicant’s situation. Approval for lines of credit may be challenging for specific individuals, especially those with limited or no credit history.

Secured Credit Card

Applicants must submit a refundable security deposit when applying for a secured credit card. Select a card that offers no annual fees and reports to all three credit bureaus (Equifax, TransUnion, and Experian). *Individuals under 21 may need a cosigner unless reliable proof of income can be provided to the issuer.

Retail Credit Card

Retail credit cards can either be closed-loop or open-looped. Retail credit cards generally have high-interest rates, but consumers will notice that application requirements are less restrictive.

• What is Closed-Loop? Known as a single-use credit card that can only be used at the retailer that provided it

  (Kohls, JCPenny, Home Depot, Best Buy, etc.) The card issuer sometimes allows purchases with partnered brands.

• What is Open-Loop? Co-branded with the retail company and payment service (Visa, American Express, Mastercard). The card can be used at retailers and locations that accept the posted payment service.

Auto Loans

Financing for a vehicle purchase is a good way to demonstrate regular payments without the same commitment as a house, for example. Auto financing can be approved without a credit history for those just starting to build their credit. Depending on the lender, a cosigner may be required.

What is the purpose of a cosigner? It helps the original applicant get approved for the auto loan by reducing the risk factor of non-payment. Cosigners have the same legal and financial responsibility as the primary applicant. The process will also help reduce interest rates and improve affordability for a first-time car buyer.

Ready to take the next step? Visit with your local Frandsen banker to discuss practical solutions that can help you build credit and strengthen your financial future.