Building Your Credit for a Better Future
It's a frustrating contradiction: You can't qualify for credit without a credit history—and you can't build a credit history without borrowing. Borrowing is the most common way to build a credit history, but it's not your only option.
Use these tactics to demonstrate to borrowers that you're a reliable credit risk:
Put services such as utilities, cell phones, and cable in your name.
Pay your bills, including rent, on time. Get into the habit of ignoring a 5- or 10-day grace period before a payment is considered late—instead always pay on time or early.
Have parking tickets or unpaid library fines? Pay them promptly and avoid getting any others.
Use a checking account instead of cash or money orders—the key is to be able to verify your payment history, control spending, and monitor your credit score.
Something else to keep in mind is that your regular savings habits can have a positive influence on lender decisions to approve you for loans that may help establish or build your credit. Your savings demonstrates you can make a commitment to regular payments and shows that you understand that saving comes before borrowing. Many people borrow because they have no savings to fall back on when they have financial needs. If you are already a saver, you show that you are living within your means and saving for your goals.
You can also use your savings balance as security to qualify for certain credit products. For example, you may qualify for a secured credit card. With a secured card, you pledge an amount of money to be held in a savings account, which sets your credit limit. You use the credit card and pay it back while leaving your savings in place. After a time, perhaps a year or two, during which you consistently meet your secured card payments, you may ask to convert to a conventional credit card.
A similar option, if you qualify, is to ask for a secured loan. In this case, you receive the loan amount, secured by your savings, as a lump sum and repay the loan in monthly installments. This is a great way to demonstrate that you are a reliable borrower, resulting in improvement to your credit rating.
Additionally, we offer a free service called SavvyMoney to all our members that allows you to monitor your credit score, check your credit report, simulate loan payoffs, explore credit building tips and offers you an opportunity to visualize your credit health at-a-glance, ultimately making it easier for you to manage and improve your score.
All these activities together contribute to an "alternative credit history" that substitutes for a lack of conventional credit records. If you have questions about how to become creditworthy or about how to take advantage of our SavvyMoney credit monitoring tool, give us a call at 281-571-5000 and ask to speak with a Cy-Fair Federal Credit Union loan officer.