A Beginner’s Guide to Credit Scores: How to Build Your Credit Score for a Bright Financial Future

Posted on Feb 6th, 2024
A man examining his credit scores

If you’re at the beginning of your credit journey, you’re likely wondering how to create credit. A positive credit profile enables you to achieve significant milestones, such as buying your first home or car. Spending wisely and paying off your debt on time will ensure you maintain a good credit score. Let’s explore the best ways to build credit history and improve your credit score. 

Understanding Credit Scores: The Foundation of Your Financial Footprint

A credit score determines your creditworthiness and tells new creditors how responsible you are when it comes to managing credit and debt. It is a three-digit number that ranges between 300 and 850 — the higher your score is, the more likely you will be approved for new credit. Bureaus calculate your credit score using information such as how much debt you have, the type of accounts you have, your repayment history, and length of credit history. 

Your credit score is calculated based on the information on your credit report. This report details your credit activity and the status of your credit situation, such as the loans you’re repaying and the status of your accounts. A credit report includes the following information:

  • Credit accounts: This information includes the type of accounts in your name, account balances, payment history, and credit limits.
  • Any inquiries: A hard inquiry is when you allow an institution to run a credit check, which can temporarily decrease your credit scores. A soft inquiry is when you check your credit reports, which doesn’t affect your credit score. Creditors can also pull a soft check as well, not just a consumer. Creditors just cannot see a soft inquiry as it’s only on consumer disclosures. 
  • Bankruptcy: This information includes the date of any bankruptcy filings, the specific chapter, and whether or not they have been discharged.
  • Collection accounts: Any past-due accounts that are in the hands of a collection agency.

Your credit score and credit report will determine whether you’ll be able to get a credit card, mortgage, auto loan, and other credit products. It also helps to determine the interest rate on your loan. A higher score reflects a good repayment history and increases the likelihood of getting a better interest rate. Many lenders will have a minimum credit score requirement to be approved for a loan or credit card. 

Credit reports are compiled by companies called credit bureaus. There are three major credit bureaus in the U.S. — Equifax, Experian, and TransUnion. A credit bureau is a company that gathers information about you, your credit accounts and payment history to create a profile that forms the basis of your credit score. These credit bureaus sell credit reports to lenders, which the lenders then use to decide whether to approve your credit application.

Starting From Scratch: How to Build Up Your Credit Score Fast With No History

If you are new to managing credit accounts, there are ways you can get started with building a good credit profile. You often need credit to build credit — here are some basic tips for building credit.

Securing Your First Credit Account

If you don’t have credit history, it can be difficult to get a credit card. However, some credit cards are designed for people who need to establish a credit history.

One example is a student credit card for college students and recent graduates. Some student credit cards also offer rewards and perks. Another example is a secured credit card that is much like a traditional one, except it requires a deposit. The deposit acts as collateral and some deposit secured cards have refundable deposits after so many months.  

At Mid Penn Bank, we make applying for a credit card quick and easy so you can begin building your credit history now. 

How to Get a Good Credit History: The Role of Timely Payments and Credit Utilization

Your payment history makes up 35% of your credit score and has the biggest impact on your credit history. Let’s look at how to establish a good credit rating and responsible credit card use.

The Impact of Payment History on Your Credit Score

Your payment history shows how you’ve paid your accounts over the time you’ve had a credit card. If you have a strong history of paying off your debt on time and in full, it’s a strong indicator that you will pay off your debt in the future. If you miss a payment or two, it will affect your score. However, if you create a monthly budget and make consistent on-time payments, your score can improve over time. 

Mastering Credit Utilization for Optimal Scoring

Using your credit card wisely can increase your credit score and build a credit history. When starting, it’s important to use only some of your credit and avoid overspending. Your credit utilization ratio, which tells bureaus how much of your credit limit you’re using, impacts your credit score.

Your credit utilization ratio is calculated by taking the amount of credit you’re using and dividing by the total amount of credit you have available to you. The utilization rate on individual credit cards also affects your credit score. Even if you have an overall low utilization rate, maxing out your credit card can lower your credit score. As a rule of thumb, it’s recommended to keep your utilization under 30% while under 10% is ideal. 

You can lower your credit utilization rate by paying your balances early before the end of each statement period. You can also request that the card issuer raise your credit limit if you’ve had the credit account open more than 6 months and haven’t missed payments. Making this request could lead to a hard inquiry, temporarily decreasing your credit score. However, not all creditors pull hard inquiries for increases. 

Navigating Challenges: Understanding the Effect of Bad Credit

A bad credit score can pose some challenges, and it can be difficult to improve your score due to being stuck in a cycle of utilizing credit without being able to pay it back. Delinquencies also stay on your credit record for seven years.

Despite the challenges, it is possible to turn your credit record around. Your credit score will improve as you stop incurring additional debt and pay on time. Even if you have large sums of debt, meeting the minimum payments on time will help improve your score and lower your debt-to-credit ratio. 

Apply for a Credit Card From Mid Penn Bank

Building your credit score improves the likelihood of being approved for new credit and getting a better interest rate. Once you have debt, paying on time is essential to maintain a good credit score. Using your credit card responsibly can help you create a good credit history, and by checking your credit score periodically, you can see where there is room for improvement.

Don’t have a credit history? You can apply for a credit card to help build one. Apply for a personal credit card using our simple application process today!



The material on this site was created for educational purposes. It is not intended to be and should not be treated as legal, tax, investment, accounting, or other professional advice.

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