Since you’re reading this blog, you no doubt have heard about the importance of establishing credit and building a good credit score. But before we can jump in, let’s first talk about what a credit score is.

A credit score is a numeric representation of a person’s record of using and managing credit and of public claims and judgments against them such as bankruptcy, foreclosures, etc.

Who Needs to Build a Credit Score?

Almost anyone who plans to obtain credit – whether that’s a credit card, home mortgages, car loans, or another type of loan – needs to build a credit score. In some instances, credit scores and/or credit history could be required to rent an apartment, obtain utility services or enter other contracts.

Establish credit infographic

How Do You Establish Credit?

You establish credit by opening a credit card, loan or other credit account, and use the account responsibly and carefully. Credit bureaus will collect and report information on all users of credit accounts (including minors), thus building credit history and possibly credit scores. It’s important to note that these types of accounts may not be available to people under the age of 18, but minors can be authorized users in someone else’s credit account with established credit history. Here are a couple suggestions for how you can establish credit for those who are just starting out:

  • Become a cosigner on a credit card account or loan. This is a great way to establish positive credit history and begin building strong credit scores.
  • Consider secured credit cards or credit builder loans. These two options are some of the most common channels for young adults to establish credit history, provided they have the knowledge and guidance for the responsible management of credit accounts/loans, and the experience of managing deposit accounts and debit cards.

Building Your Credit Score

Once you have a credit account or a loan, your score will be reflective of how well you manage the account/loan. Making payments on time, in full, the number of loans you apply for, the total amount of outstanding debt, among other factors will impact your score positively or negatively.

There are many resources that help educate and provide advice on how to build positive credit history that will allow you not only to receive credit, but receive credit with competitive interest rates and terms. Watch our video on How to Improve Your Credit Score and review the other posts in our Personal Finance section to learn more.

Next steps:

  1. Contact me or stop by a Bankers Trust location if you have questions.
  2. Learn more about Personal Finances.
  3. If you’ve served in the U.S. Army and are having trouble obtaining a loan due to having little to no credit history, visit Misadventures in Money Management for additional helpful tips tailored for your situation.