Credit cards are not the only way to build credit.
According to David Mikolay, vice president and Akron-Canton regional market manager at CF Bank in Fairlawn, and Era Griffin, regional manager at The Huntington Private Bank in Cleveland, credit and lending history is a big part of personal finances.
“Credit history is important because in today’s world, whether you want to purchase a home or have a credit card, it allows you to purchase those things for your family,” Griffin saidd. “It’s the bank’s measure of your ability to repay a loan. We look at various factors, most of it being payment history. That helps to build a strong credit score.”
Lenders, insurance companies and even some employers use credit history to determine how one manages finances, Mikolay said.
“As far as your credit history goes, it shows your ability to obtain credit and how responsible you are with it,” he explained. “That can determine future credit and loans given to you and the amount of interest you pay.”
Individuals can build credit in many ways.
“Building your credit history, usually people start out when they are 18 with credit cards,” Mikolay noted.
Griffin added, “Making your payments on time is the biggest thing. But generally, when you’re starting out, it may be difficult getting a regular credit card. So, we suggest a smaller card, like a gas or store-specific card. Don’t fully use that limit – buy something, turn around and pay that back.”
Other ways to build credit include keeping your checking and savings accounts in good standing and having a co-signer on credit requests.
Building one’s credit could negatively impact it too.
“The biggest thing is nonpayment or late payments,” Mikolay said. “Other things include your credit ratio. So, if you are maxing out your lines of credit, even if you’re paying them down, that can affect your credit score. People have a misconception that paying it down while it’s still in high use is OK, but that can negatively impact a score.”
Griffin added, “Sometimes when you apply to a significant number of cards with availabilities and you don’t use them, that can be a negative. It’s not usually a great idea to have a large number of credit lines out there.”
Repairing a bad credit history starts with recognizing those issues.
“Knowing what your credit looks like and where those scores are can help you,” Mikolay said. “A lot of companies let you know what your score is and many of them also do a yearly full report. This is a good way to know where you are in your credit.”
Griffin suggested, “Individuals need to reach out to the credit bureau to see what is being reported. If they are struggling to make payments and need to restructure a bit, they need to reach out to their lender and be proactive with them.”
But, it’s important to stay diligent.
“Make sure you handle your checking and savings accounts in a satisfactory manner and start with a smaller card,” Griffin expressed. “Credit is very important today. Establishing good credit and maintaining that has become a big part of our lives.”
Mikolay added, “Make sure you can afford what you’re spending. Don’t max (credit cards) out and if you can’t pay back something quickly, don’t buy it. Also, educate yourself. When you’re applying for cards, you need to know how the credit works before you sign onto it and start using it.”