The ABCs of building good credit

Published on Sep 30, 2023

The ABCs of building good credit

Credit scores are not something that most people think about very often, but having a good score is crucial. In addition to needing a good score for a loan, you need a credit check to:

Your credit score isn’t something that you should leave to chance. If you don’t have a credit score or your score is low, you can use simple strategies to establish and grow your score.

Use a secured credit card

A secured credit card is one that banks offer and requires a deposit. The way it works is simple. For example, if you want a card with a $500 credit limit, you make a $500 deposit with the issuing bank. The deposit serves as collateral for the charges you make on the card.

An important benefit of obtaining a secured credit card is that it does not need a credit check. The credit bureaus have your monthly payment reports, which improves your credit score. After your score improves or you close your account, you will get your deposit back if you upgrade to an unsecured card.

Take out a credit-builder loan

A credit-builder loan is a type of loan that you take out for the sole purpose of building your credit score. It differs from a traditional loan in one important way—you won’t receive the money you borrow until after you pay the loan.

When you take out a credit-builder loan, the money you borrow sits in a special account. Because it is secured with collateral, no credit check is required.

Have a mix of credit accounts

Several factors contribute to your credit score. One is the credit mix, which refers to your different credit accounts. Managing a variety of credit demonstrates that you are a responsible borrower, which is why it helps your credit score.

You don’t need too many credit accounts to improve your credit mix. Try to aim for a minimum of three, if possible. In addition to a secured credit card and a credit-builder loan, other types of credit accounts you can use to build your credit score include:

Keep old credit accounts open

If you have a credit account you no longer use, you may be tempted to close it—but this could be a mistake. The length of your credit history is another important factor that makes up your credit score. Closing old credit accounts shortens your credit history, which could harm your score.

If you have an old credit account, you can use it periodically to keep it open. You could fill up your gas tank, make an inexpensive store purchase, or something else.

Avoid opening too many new accounts

Opening a new credit account will lower your credit score by a small amount temporarily. However, if you apply for several new credit accounts in a short period, it could have a significant negative impact on your credit score. Credit checks may stay on your credit report for up to two years, but they only affect your credit score for up to 12 months.

Monitor your credit reports

The credit reporting system isn’t perfect, and your credit reports may sometimes have errors that harm your credit score. You’re entitled to free copies of your credit reports annually from each of the three credit bureaus (TransUnion, Equifax, Experian). Be sure to review them to make sure they are correct. If you find any errors, you can dispute them with the reporting bureaus.

Make all of your payments on time

Strategies to establish and grow your credit score rely on you making your payments on time. Not only will they be ineffective with late payments, but you will hurt your credit score by not paying your monthly statements on time each month.

Developing your credit-building strategy

It’s not difficult to build good credit, but to get the best results, you will need a strategy. A representative from your local Valley Bank branch can help you get started. You can also visit our website to learn more about building your credit. The sooner you get started, the sooner you can take advantage of the many perks of having a good credit score.





This article is intended for educational purposes only. Valley Bank does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. All loans products are subject to credit approval. Additional terms and conditions apply. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

How to Build Your Credit

How to Build Your Credit

Having a good credit score is key to paving the way to your future financial success. Without good credit, you may have a difficult time opening a credit card, getting a loan, buying a home, and more. It can even make it harder to get a job. And if you are given credit, you’ll likely pay higher interest rates on it than people with higher credit scores, which can cause you to accumulate debt.

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