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Understanding the Importance of Building and Maintaining Your Credit Score"

Updated: Jun 14

It can be challenging to establish credit. Without a credit background, obtaining a loan, credit card, or apartment is difficult.


How can you demonstrate a track record of responsible loan repayment when you are unable to obtain credit from anyone?


There are multiple resources available to assist in building a credit history:


To obtain a credit card, you have several options such as applying for a secured credit card, getting a co-signed card, or becoming an authorized user on someone else's card.


  • For those looking to establish credit without a credit card, alternative options to consider include credit-builder loans, secured loans, and co-signed loans. Additionally, rent, phone, and utility payments can also be utilized to build credit, with some methods being cost-free while others may require a fee.


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The following is a step-by-step guide to help you make the perfect cup of coffee at home.


Take a glance at the tools available for building credit and learn how to utilize them in order to achieve a favorable credit score.


1. Apply for a secured credit card


2. Consider using a credit-builder product or obtaining a secured loan


3. Utilize a Co-signer


4. Gain authorization as a user


5. Receive credit for the bills you have paid


6. Adopt Positive Credit Practices


7. Verify your credit reports and scores



Obtain a protected credit card


If you are starting to build your credit score or have a low credit score, you may need to begin with a secured credit card. This type of card requires a cash deposit, which is equal to your credit limit. The amount you can deposit may vary depending on the card, with many requiring a minimum of $200. However, there are now companies like Avant, Deserve, and Petal that offer alternative credit cards without the need for a security deposit. These cards are designed for individuals with no credit and aim to lower barriers for obtaining credit, but they still come with their own considerations.


When using this card, it can be used just like any other credit card. This includes purchasing items, making payments by the due date, and potentially incurring interest if the balance is not paid in full. Upon closing the account, the initial deposit will be returned.


Secured credit cards are not intended for long-term use. They serve the purpose of helping you establish enough credit to become eligible for an unsecured card - a card that does not require a deposit and offers better benefits. When choosing a secured card, it is important to select one with a low annual fee and to ensure that it reports payment information to all three major credit bureaus: Equifax, Experian, and TransUnion. Your credit score is based on the data included in your credit reports, so having a card that reports to all three bureaus allows you to build a more complete credit history.


Obtain a credit-building product or a secured loan


A credit-builder loan, as the name suggests, is specifically designed to assist individuals in building their credit score.


Usually, the funds that you obtain are kept by the creditor in a designated account and will only be given to you once the debt is fully paid off. This can be seen as a mandatory savings plan, and your repayments will be reported to credit reporting agencies. These types of loans are typically provided by credit unions or local banks; Self and SeedFi both offer them through online platforms.


According to NerdWallet, Kikoff provides a credit-building loan of $750 with the sole purpose of improving one's credit.


Alternative: If you currently have funds deposited in a bank or credit union, you can inquire about obtaining a secured loan for the purpose of building credit. These loans use the money in your account or certificate of deposit as collateral. While the interest rate may be slightly higher than what you are currently earning on your account, it could potentially be much lower than other available options.


Utilize a co-signer


Obtaining a loan or an unsecured credit card with the help of a co-signer is a viable option. However, it is important to ensure that both you and the co-signer are aware of the fact that the co-signer will be held responsible for the entire amount owed in case of non-payment.


How to become an authorized user


You have the option of having a family member or significant other include you as an authorized user on their credit card. This will add their card's payment history to your credit records, so it is important to have a primary user who has a good track record of making timely payments. Additionally, becoming an authorized user can speed up the process of establishing a FICO score. This can be especially beneficial for a young individual who is just starting to build their credit.


It is not necessary to utilize or own the credit card in any way to receive advantages as an authorized user.


To ensure that your efforts to build credit are not in vain, it is important to ask the main cardholder if the credit issuer reports the activity of authorized users to credit bureaus. It is typically reported, but double checking is recommended.


Before being added as an authorized user, it is important to reach a mutual understanding about the terms and conditions of using the card. In the event that an agreement is made for you to pay a portion, it is best to be prepared to fulfill your share.


Earn credit for the payments you make


There are certain services, such as Rental Kharma and LevelCredit, that report your rent payments to credit bureaus in order to establish a positive track record of timely payments. While not all credit scores consider these payments, some do, which can improve your chances of obtaining a loan or credit card and solidify your credit history for potential lenders.


Experian Boost provides an opportunity for individuals to have their cell phone and utility bills included in their credit report with Experian. However, it is important to note that this will only have an impact on the credit report with Experian and any credit scores based on it.


Develop Good Credit Practices


It takes time to establish a strong credit score, as evidenced by a consistent record of timely payments.


In order to obtain a FICO score, it is necessary to have at least one account that has been active for a minimum of six months and also have at least one creditor who has reported your recent activity to the credit bureaus within the past six months. An alternative scoring system, known as VantageScore, which is in competition with FICO, may produce results at a faster pace.


Follow these useful credit habits in order to increase your score:


  • It is important to ensure timely and at least minimum payments for credit card or loan payments. Making payments on time and consistently is crucial for improving your credit score. If possible, paying more than the minimum can also positively impact your score.

  • It is advisable to maintain a low credit utilization if you frequently use credit cards. Credit utilization refers to the percentage of your credit limit that you utilize. Our recommendation is to keep your credit utilization below 30% for all cards, whenever feasible. A lower utilization can have a positive impact on your credit score.

  • It is advisable to avoid applying for multiple credit accounts in a short period of time as it can result in a slight and temporary decrease in your credit score. However, multiple applications can have a significant negative impact. According to NerdWallet, it is recommended to space out your credit applications by approximately six months, and to thoroughly research the best credit card for your specific needs before submitting an application. It is important to note that if you apply for multiple auto loans or mortgages within a brief timeframe, they will be grouped together as "rate shopping" and will not have a significant impact on your credit score.


  • It is recommended to maintain open credit card accounts, unless there is a valid reason to close one such as a high annual fee or unsatisfactory customer service. Alternatively, you may consider downgrading the account or transferring the credit limit to a different card. Closing an account may negatively impact your credit utilization ratio and decrease the average age of your accounts.


Verify your credit ratings and records


A credit report serves as a documentation of your previous credit usage. It also predicts your future credit management based on the data included in your credit reports. It is important to regularly check both your credit scores and reports to identify any discrepancies and track the progress of your credit-building activities.




To obtain your credit report, you have the option to directly contact any of the three major credit bureaus: Trans



Union: Dial 800-916-8800. Equifax: Visit the provided link or call 888-378-4329. * Experian: Follow the link or call 888-397-3742.




Many credit card companies display customers' FICO scores on their monthly statements and also provide online access. Additionally, some issuers give free access to credit scores to both cardholders and non-cardholders.


To ensure accuracy, it is recommended to request your credit reports and thoroughly review them for any mistakes or inconsistencies. Utilize AnnualCreditReport.com to access your reports for free on a weekly basis. If you come across any errors in your credit report that could potentially be negatively impacting your scores, make sure to dispute them

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