Building Credit from Scratch

Building Credit from Scratch: Your Roadmap to Financial Credibility

Let's talk about one of the most crucial financial foundations for young people: building credit. Your credit score isn't just a number—it's your financial reputation that can unlock opportunities like apartment rentals, car loans, and even job prospects.
 
Before borrowing money, it’s important to lay a strong financial foundation. Start by developing good spending habits, such as budgeting and tracking expenses, to ensure you’re living within your means. Actively save a portion of your income and work towards building an emergency fund that covers 3–6 months of expenses. This cushion provides financial security and helps you handle unexpected costs without relying on credit. By establishing these habits, you’ll set yourself up for long-term success and be better prepared to manage any future debt responsibly.

A strong credit history can:

  • Help you secure lower interest rates

  • Potentially impact job opportunities

  • Provide financial flexibility


How do you get started if you don't have any credit?


Apply for a cash-secured loan.

A cash-secured loan is a great way to build credit if you don’t have an established credit history. With this type of loan, you use money you already have in a savings account as collateral, making it a low-risk option for the bank and an ideal starting point for you. By making regular payments on the loan, you can demonstrate responsible borrowing and build a positive credit history.


Ask someone with good credit to co-sign.

A co-signer loan is a loan where someone with an established credit history, like a family member or trusted friend, agrees to share responsibility for the loan with you. This co-signer guarantees the loan, giving the lender confidence that it will be repaid. For borrowers with no or limited credit history, it’s a great way to establish credit by making regular, on-time payments.

However, it’s crucial to pay the loan on time—not just to build your credit but to honor the trust your co-signer has placed in you. If payments are missed or late, it could negatively impact their credit as well as yours, potentially straining your relationship.


Critical Dos and Don'ts

 

Do:

  • Pay bills on time, every time

  • Keep credit utilization under 30%

  • Check your credit report annually

  • Diversify credit types gradually

 

Don't:

  • Apply for multiple cards at once

  • Max out your credit limit

  • Miss payments

At Exchange Bank, we know everyone has to start somewhere. If you’re looking to establish credit or have questions about improving it, contact one of our loan officers. We’ll work with you to create a plan tailored to your financial goals.