Building credit is an important part of managing your finances and can help you in the future when you want to get a loan, rent an apartment, or even get a job. But how do you build credit if you don’t have any? Here are some easy steps to get started:
Ways to Build Credit
- Get a Credit Card
One of the most common ways to build credit is by using a credit card responsibly. If you don’t have credit yet, you might not qualify for a regular credit card, but you can apply for a secured credit card (more on this later).
- Make Small Purchases
Once you have a credit card, use it for small purchases that you can easily pay off, like gas or groceries. Avoid buying things you can’t afford to pay for right away.
- Pay Your Bills on Time
Paying your bills on time is the most important part of building credit. Whether it’s your credit card bill, rent, or utility bills, on-time payments show lenders that you’re responsible.
- Keep Your Credit Card Balance Low
Try not to use more than 30% of your credit limit. For example, if your credit limit is $500, try to keep your balance below $150. This helps your credit score by showing that you can manage your spending.
- Apply for a Secured Loan
Most banks offer secured or credit builder loans. With these, you make payments on the loan, and once it’s paid off, the money is yours. It’s a good way to build credit while saving money.
- Check Your Credit Report
Once you start building credit, check your credit report to make sure everything is accurate. You can get a free report once a year from each of the three main credit bureaus: Experian, Equifax, and TransUnion.
Secured vs. Unsecured Credit
If you're just starting to build credit, you’ll hear a lot about secured and unsecured credit. Here’s what they mean:
Secured Credit
- What It Is
Secured credit requires you to put down a cash deposit as collateral. This deposit is usually equal to your credit limit. For example, if you put down a $300 deposit, your credit limit will be $300.
- How It Works
You use a secured credit card just like a regular credit card. The difference is that the deposit protects the lender in case you don’t pay your bill. If you make payments on time, your credit will improve, and eventually, you may qualify for an unsecured card.
- Who It’s For
Secured credit cards are great for people who are new to credit or need to rebuild their credit after financial trouble.
Unsecured Credit
- What It Is
Unsecured credit doesn’t require any deposit. The lender gives you a credit limit based on your credit history and trust that you will pay back what you borrow.
- How It Works
You can use an unsecured credit card to make purchases, and you’re expected to pay back the money each month. There’s no upfront deposit, but your credit limit will depend on how good your credit is.
- Who It’s For
Unsecured credit is for people who already have a good credit history. These cards often come with rewards, like cash back or points for travel.
Which is Right for You?
If you're just starting to build credit or trying to rebuild after a rough patch, a secured credit card is a safe option. Once you’ve proven that you can make payments on time and keep your balance low, you can upgrade to an unsecured credit card. You can compare the different credit card options offered by Bar Harbor Bank & Trust here.
Remember, building credit takes time. Whether you start with secured or unsecured credit, the key is to always make your payments on time and keep your balance under control. Over time, you'll see your credit score improve, opening up more financial opportunities for you.
Have questions or need assistance?
If you have questions about this topic or need assistance with your banking needs, please speak to one of our knowledgeable staff at your local Bar Harbor Bank & Trust branch. We’re here to help you build a solid financial future.
