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Five Steps to Build Your Credit From Scratch

Oct 09, 2019 - Posted by: Rocky Mountain Credit Union

Credit and credit scores can seem complicated, but you don’t have to have a degree in economics to figure out how to start building your credit. Your credit score is a way of analyzing your creditworthiness (how likely you are to pay off a loan) for potential lenders, and it becomes a significant number for a variety of things, from passing a landlord’s background check to buying a house.

Building up your credit is one thing, but what if you don’t already have a credit profile? Here’s how to jump-start your credit when you’re starting from the bottom:

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Pay Off Your Bill in Full Each Month

The first rule of credit cards is "pay your bill on time." The second rule of credit cards is "pay your bill on time." To get the most bang for your buck with your payment, pay off your bill in full each month, treating each card and account like a debit card rather than a line of credit. It really is just that simple. Help yourself out by stashing some money away in an emergency fund, so you're not tempted to use your card in tight times instead.

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Sign-up For a Credit Card

You are not required to already have credit in order to qualify for some types of credit cards. You might want to consider a secured credit card first. With these, you pay a fixed amount upfront, and that's your credit limit to spend. By demonstrating you can pay your bills on time, you can start to build up your credit. 

RMCU offers two types of personal credit cards, the Visa Platinum Rewards Card, and the Visa Classic Card. You can apply online and find out fast if you qualify. From there, by using it for your daily spending and paying off your balance in full each month, you're well on your way to a healthy credit score.

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Become an Authorized User on Someone Else’s Account

Even if you don't qualify for a credit card on your own just yet, you can hop on someone else's account as an authorized user and start building your credit that way. This is usually something you would ask of a family member or significant other: someone you trust and who trusts you.

The good news is, you don't even need to have any spending power or have the plastic in your hand to benefit from being added as an authorized user. As long as the primary account holder is in good standing, you benefit from their diligence.

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Apply For a Different Type of Loan

Loans besides credit cards can help build up your credit, as well. Taking out a car loan or a home loan can give you a boost. It's possible to qualify even as you're beginning to build your credit, especially if you have proven regular income, or there's a government program in place to help you get financing. If you don't qualify on your own, cosigning is an excellent option if you can cosign with someone you trust.

As with any type of loan, you want to be sure that you're paying the amount you owe on time each month. You can see a dip in your credit score right after you take on a new loan, like an auto loan, but good payment practices will help you offset that over time. As you continue to pay your balance off and may on-time payments, your credit score will continue to rise. 

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Keep Your Spending Habits Healthy

Paying your bill is one thing, but you want to make sure that you're spending within your means. A higher credit limit can make impulse purchases all the more tempting, even if you don't have the dollars in your account at that moment. 

Find out more about the ways you can start building your credit by checking out RMCU’s personal banking space online.

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