Building Credit and How it Works

man checking his credit score through online banking

Credit – a concept that carries weight in our financial lives. The decisions we make impact our credit, and in turn, our credit shapes our future decisions. Whether you are new to the credit landscape or aiming to strengthen your financial position, this blog stands as your reliable guide. Let’s explore credit building, its mechanics, and discuss why using a secured credit card is a smart move towards a secure financial future.

What are the basics of credit?

Credit is a term frequently discussed in financial circles, and it boils down to a financial lifeline. Credit enables you to borrow money with the commitment to pay it back later, often with added interest. It’s ideal for when you want to make a purchase (or use a service) but your wallet isn't quite up for it. Essentially, credit is the friendly IOU that helps you get what you need without having immediate cash.

Navigating the borrowing terrain includes direct transactions with sellers or intermediaries such as banks. Accessing this credit privilege is as simple as submitting a request, and the approval depends on your financial history, reflecting your trustworthiness in managing finances.

And finally, whenever people talk about "good credit," they are essentially acknowledging your track record of responsible financial management.

What does building credit mean?

Building credit is the process of boosting your creditworthiness. It is a pivotal step towards improving your financial standing and unlocking better credit and loan opportunities. Your credit score sets the stage for this journey, and if it ever needs a boost, options like secured credit cards or credit-builder loans could be worth exploring. (Read more about credit scores in our recent blog, Build Your Credit Score with a Secured Credit Card).

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Ways to Build Credit

Navigating the concept of credit can feel like decoding a complex system, especially because you need credit to establish credit. Luckily, we're here to guide you with some straightforward steps:

1. Use a Secured Credit Card

Are you starting fresh or tackling credit hurdles? Secured credit cards are a reliable method to build credit. These cards require an upfront deposit, which creates a safety net for lenders. As long as you consistently showcase your payment reliability, you will eventually have the chance to upgrade to an unsecured card with more perks.

2. Pay Regularly

Punctuality is key! In fact, your payment history has the most significant impact on your credit score. Always remember to consistently make your payments on time; at the very least, meet the minimum payments to avoid penalties. If you’re looking for a great resource to help you navigate your payments, check out Armed Forces Bank’s Credit Card Payoff Calculator.

3. Low Credit Utilization

We have a balancing act here – use some credit, but not too much. Remember to aim for that sweet spot by keeping your credit utilization under 30% and ideally shooting for 10% or lower.

4. Reporting Bill Payments

Make sure your responsible bill-paying habits don't go unnoticed. You can leverage third-party services to include your payments for rent, utilities, or cellphone plans in your credit score.

5. Keeping Accounts Open

Think of your credit accounts as reliable comrades. Keep them active, especially the ones with a longer history. Because your credit history factors in the average account age, consider holding onto your first credit card around even if you don’t use it frequently.

For more credit building insights, explore our Credit Tips – your trusted roadmap to mastering the art of credit with precision!

How to Build Credit at Armed Forces Bank

Whether you are just starting your credit journey or working on credit repair, our Credit Builder Secured Visa® Credit Card at Armed Forces Bank is an ideal choice. This card ensures your credit building efforts receive due recognition through automatic reporting to the three major credit bureaus. You can also enjoy the flexibility to customize your credit experience! Simply choose your limit, ranging from $300 to $3,000 based on the deposit into your Credit Builder Savings account.

Features of Armed Forces Bank’s Credit Builder Secured Visa® Credit Card include:

  • No annual fee
  • No application fee
  • No over-limit fee
  • Automatic reporting to the three major credit bureaus for building a credit history
  • Set your own credit limit between $300 and $3,000
  • Enhanced security with EMV chip technology
  • Faster, secure online transactions when you enroll in Visa® Checkout

The bottom line? A secured credit card provides the perfect opportunity to gear up for financial success. Start building your credit today!

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Member FDIC

Subject to credit approval. Transaction and Penalty fees apply.  Credit Builder Savings account required.  $5.00 quarterly fee charged to the Credit Builder Savings account if not enrolled in eStatements. Improved credit score is not guaranteed. Credit score is determined by credit reporting agencies based on multiple factors, but satisfactory performance on a credit card product can improve your credit score. Default on a credit card, including missed or late payments can damage your credit score. Once added, funds cannot be withdrawn from the Credit Builder Savings account and the Credit Builder credit card without closing the savings account and the credit card.