Credit. A score that can make or break your ability to receive a low rate loan – or any loan at all. But how does credit get established? For some, the credit journey starts by applying for student loans and apply for the first “pre-approved” credit card that's sent in the mail. For others, the journey may look different. There’s no perfect path to building  credit, but with our 101 guide, we can make your journey much easier. 

What is a Credit Score and what goes into the score?

To begin, we must learn about what makes a credit score. A credit score is an indicator of the financial risk and institution makes when they lend you money and the likelihood you will pay them back.  A lower score of 580 or below, could signal to a financial institution that you are delinquent with your bills or have a history of not paying your maxed out your cards while a higher score showcases the opposite. 

There are various factors that will positively and negatively affect your credit score, each weighed differently and separately.

Payment History – 35% and the most important factor. Missing a single payment can significantly impact your score. Be sure to always pay your bills before the end of the grace period. If you feel you won’t be able to make your payment, reach out to the lender to see if you can go on a payment plan. Accounts being sent to collections will negatively impact your score. Why? Delinquency indicates you are unable to existing loans, and financial institutes may be unable you new loan. 

Utilization – 30%. It’s ideal to keep your credit utilization below 20%. For example, if you have one credit card with a credit limit of $1,000, it’s best to keep the balance on that card below $200.

Length of History – 15% This is comprised by averaging out the age of all your credit history. Closed-end loans come and go, but it’s important to keep your open-ended credit, such as credit cards, open. Closing an old established credit card can negatively impact your score.

Credit Mix – 10% - Lenders like to see a variety of credit in your portfolio. Starting with a credit card or student loan is great, but lenders will eventually like to see things like auto loans or even a mortgage to better evaluate your likelihood of repayment.

Hard Inquiries – 10% When you apply for credit, in almost all cases your credit report will be pulled by the lender resulting in what is known as a Hard Inquiry. These inquiries stay on your report for 2 years. Try to keep this number as low as possible by only applying for a loan when it is absolutely necessary.

Building Credit and Picking Your First Card

To expedite the building process, we need to pick our first credit card. A credit card is a great way to build your credit score without having a loan attached, with the application process being much simpler. Proper use of a credit card will demonstrate your ability to be fiscally responsible and will positively impact your credit score.

Before deciding to get a credit card, make sure you are willing to provide your social security number and have your annual income handy. Both will be instrumental in the financial institutions decision to issue you a credit card.

It can be daunting to pick your first credit card. When deciding, look at your own personal finances to avoid going into credit debt. Are you worried you won't be able to pay your credit balance each month? Consider a low interest credit card. Remember, there is a massive difference in the amount of interest you'll pay back between a 6.99% card and a 21.99 % card. 

Confident in your budgeting ability? Try a cash back card to get rewarded for the way you pay. If your income level is on the lower side or want to rebuild your low credit score, it may be best to start with a Secured Credit Card. Secured Cards are a great way for beginners to build credit, or to reestablish credit for individuals that have had past difficulties. With a secured card, you borrow against your own money and there is no credit check required. Consider applying for a Visa Platinum Secured Card from First Commonwealth to (re)start your journey. No matter the card you pick, look for one without an annual fee.

Be Aware of Store and Branded Cards

When picking your card, find one from a reputable financial institution. At First Commonwealth, we recommend against getting a retail card for your first credit card. Retail credit cards are tied to specific e-commerce platforms or brands. These cards sport extremely high rates, annual fees, but promise premium rewards. These rewards could be exclusive merchandise, coupons, exclusive deals, or higher than industry cash back rewards to use at designated locations. Retail credit cards, specifically ones tied to brands, leverage the brand loyalty cardholders have to convince them that they are getting a great deal. Be warned, these brand credit cards are using your fandom, loyalty, and spending habits against you.

The benefits of the perks found within store cards rarely, if ever, outweigh the negatives of high-interest rates and annual fees. If you're tempted by your favorite sports team's credit card, compare their rates to ours and see how they match up in the long run.

Now that we've done our research and picked out a credit card right for us, how do we build up our credit? It may seem daunting starting at a low score and trying to reach a score of 720+. But don't worry. Even though credit isn't built overnight, you can quickly build your credit by simply using your card, and paying it off immediately. 

Building Credit After a Credit Card

You've decided on a credit card, and you've gone a few months using it, never maxing it out, and paying off your balance each month. Great Job! Now what? After some time building your credit, with your card and/or with your student loans, you can finally look towards other ways to build.


Now that you've proven your ability to maintain a healthy credit score, you can now pursue loans at lower rates than you would have had with a low score. Lower rates from a high credit score will save you thousands in interest over the course of your home equity, auto, or any personal loans. 

Alternative Payments to Build Credit

Paying rent, utilities, or cellphone payments? What about Netflix? You've already demonstrated the ability to be fiscally responsible and pay a monthly bill. Some credit bureau services, like Experian Boost, can help raise your score just by paying for these popular streaming services. 

What to Avoid

  1. Pay it Later Mentality- Having a Credit Card with a $2000 limit might seem like an invitation to buy the new phone you've been eyeing up or a new TV, but don't get tricked. The interest rates alone with some credit cards will cause you to pay nearly double the cost of the device in the long run.
  2. Only Paying the Minimum - Only paying the minimum is a great way to avoid delinquency but also a great way to pay much more in interest. Whenever you can, pay off your credit card in full.

And that’s just the brief of it. There is much more that goes into maintaining a healthy score, such as proper budgeting, knowing what bills you can pay with your card, and much more. If you are looking to talk to someone about your credit score, set up a free appointment with one of our Certified Federal Credit Union Financial Counselor, today. Together, you can start your credit journey (back) on the right foot.