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How to Build Credit: Insights from O1ne Mortgage

At O1ne Mortgage, we understand the importance of building a strong credit history. While using your debit card responsibly is crucial for managing your finances, it generally doesn’t help you build credit. However, there are several effective strategies to establish and improve your credit score. For any mortgage-related needs, feel free to call us at 213-732-3074.

Why Debit Cards Generally Don’t Help You Build Credit

Most debit cards won’t help you build credit because the transactions you make aren’t typically reported to the three major credit bureaus: Experian, TransUnion, and Equifax. When you use a debit card, funds are directly withdrawn from your checking account, meaning you aren’t borrowing money. Therefore, these transactions don’t contribute to your credit history.

Even using your debit card as “credit” during checkout won’t help build credit. This simply changes the way the transaction is processed, but the funds still come from your checking account.

How to Build Credit

Depending on your credit history, your options for building or rebuilding credit may vary. Here are some strategies to help you get started:

1. Try a Credit-Building Debit Card

While traditional debit cards don’t build credit, some new offerings are designed to help you add positive payment information to your credit reports. For example, the Experian Smart Money™ Digital Checking Account & Debit Card can help you build credit without debt by linking to Experian Boost®, which gives you credit for eligible bill payments after three months. This could be a good option if you’re considering opening a new checking account.

2. Become an Authorized User

Another way to build credit is to become an authorized user on a family member’s or friend’s credit card. The account will be added to your credit history if the issuer reports authorized-user accounts to the credit bureaus. Ensure the primary account holder uses their card responsibly to benefit your credit score.

3. Open a Credit Card

If you have a thin credit file, qualifying for a traditional credit card can be challenging. A secured credit card, which requires a refundable deposit, can be a good alternative. Use the card responsibly, and your payment history will be reported to the credit bureaus, helping you build credit.

4. Consider a Credit-Builder Loan

A credit-builder loan works in reverse of a traditional loan. You’ll make fixed monthly payments over a set period, and your payment history will be reported to the credit bureaus. This can help you build credit, and once the loan term is up, you’ll receive your money back, possibly with interest.

5. Get Credit for Paying Rent

Using services like Experian Boost can help you get credit for qualifying residential rental payments. This can be especially beneficial if you don’t have much payment history yet. Your rent payments can be added to your Experian credit file, potentially increasing your FICO® Score.

The Bottom Line

Using your debit card responsibly is always smart, but traditional debit cards don’t typically help you build credit. However, new offerings and other strategies can bridge the gap between responsible checking and creditworthiness. For more personalized advice and mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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