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How to Build Credit

Written by Andrea Klinedinst, Compliance Assistant

If you don’t have enough cash on hand, making large purchases for cars and houses or applying for credit cards or jobs, among other major life decisions, may require you to have a good credit score. You might find yourself asking, what is a credit score? Or how can you build your credit? The topic of credit and credit scores can be confusing. Bruce Edwards, Senior Vice President and Commercial Loan Officer at our Canton banking center, answered a few questions that can help you understand more about your credit and how you can work on building it.

What is a credit score? 

Bruce Edwards (BE): This is a grading on how well a borrower pays their loans back to their lenders and if the payments are on time or late. Credit scores range from 850, which is an absolute perfect repayment score, to 450, which is the worst possible score.

What affects your credit score?

BE: Paying the billed amount of your payments that are due each month and paying them on time and not after the due date. Most lending institutions will usually provide a grace period for payments to be paid. Many grace periods are 10 days after the payment is due. 

Why is having good credit important?

BE: Credit is not something that everyone needs with regard to financing an expense or the purchase of an item. However, having good credit is important in the event that you need to carry a credit card for various reasons, such as staying at a hotel, as many hotels will not accept cash. Additionally, insurance companies will offer their lowest premium deals on insurance policies to those who have a good credit score and a higher cost premium to those who have a poor credit score. Having poor credit and being turned down for a home loan may leave the potential borrower renting their home for many years as they try to build their credit back. This creates a lost opportunity to build credit with their monthly payments.

What are some ways to get credit, and what are some ways you can build/maintain a good credit score?

BE: Physically going to the lending institution and applying for a loan is one method. Others include calling in to the institution and applying over the phone. Most lending institutions now allow for online loan applications which allows the potential borrower to apply at any time of the day or night when it is most convenient for them. Other ways are to purchase an item at a retailer who offers some form of credit such as “90 days Same as Cash” or 0.00% interest for a period of time.

The easiest way to build good credit/score is to apply for a credit card and make a purchase with it. The purchase does not need to be more than a couple of hundred dollars. Then, make the minimum monthly payment for 6 or 8 months, and then payoff the remaining balance. This act of making the billed payments as they come due each month will build a borrower’s credit score. Doing this several times will continue to build the score, but the payments must be made on time. Paying off the balance on the credit card immediately after making the purchase will not create the repayment record like the process mentioned above and, therefore, will not build the credit score.

What types of credit does MNB offer?

BE: MNB offers credit cards to our customers. We also offer consumer loans such as for car purchases, boat purchases, motorcycle purchases, ATV and UTV purchases, lawn mower purchases, and more for personal expenses. We also offer business loans, commercial real estate loans, agricultural loans, and any other type of loan that is associated with a business. We also offer home loans and land loans.

What else do you need to know?

BE: Making payments on loans on time is extremely important. Should something happen that interrupts a borrower’s income, that borrower is always encouraged to notify the bank immediately, so we can potentially set up an alternative repayment plan, thereby not allowing the loan to become past due and having the bank report the loan as being past due to the credit reporting agencies. A good and prompt line of communication between the borrower and the bank is paramount to maintaining a good credit history for the borrower.

If you have other questions regarding how to build your credit or to apply for one of the credit services we offer, give us a call at 877-647-5050 or stop in to one of our banking centers today.