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Building Credit: The Role of Bank Accounts and Effective Strategies

At O1ne Mortgage, we understand that building credit is a crucial step towards achieving your financial goals, whether it’s buying a home, securing a loan, or simply ensuring financial stability. In this comprehensive guide, we’ll explore the relationship between bank accounts and credit building, and provide actionable strategies to help you build and maintain a strong credit profile. For personalized mortgage services, call us at 213-732-3074.

Do Bank Accounts Help You Build Credit?

Bank accounts are essential for managing your money and keeping it safe, but they don’t typically help you build credit. This is because banking activity isn’t usually reported to credit bureaus. However, there are some exceptions. Some fintech companies have introduced checking accounts and debit cards with features that can help you get credit for your banking activity. These are relatively new and not yet the norm.

While most banking activity won’t impact your credit score directly, maintaining a healthy balance or an emergency fund can indirectly protect your credit by ensuring that unexpected expenses don’t lead to missed payments. Additionally, having savings can help you qualify for secured credit cards or loans, which can aid in building credit.

Bank Accounts Can Affect Getting New Credit

Although conventional bank account activity won’t affect your credit scores, it can influence your ability to get approved for a mortgage. Mortgage lenders often review bank statements to assess your financial stability. High assets and stable finances can indicate lower risk, making it easier to secure a loan.

For some consumers, linking their bank accounts to get credit for stability can produce an UltraFICO score. This score considers factors such as:

• How long accounts have been open
• Frequency and recency of transactions
• History of positive account balances
• Consistency of cash on hand

While the UltraFICO score is not yet widely available, it could offer more options and better terms for some borrowers in the future.

How to Build Credit

Even though the average bank account isn’t part of your credit history, there are several ways to build good credit, whether you’re starting from scratch or recovering from a setback. Here are some effective strategies:

Secured or Unsecured Credit Cards

Credit cards, whether secured or unsecured, are generally reported to credit bureaus. Paying on time and keeping balances low can help you build credit. Late payments can significantly damage your credit score, so it’s crucial to pay on time. Additionally, using only a small portion of your credit limit and keeping balances low can positively impact your credit scores. Keeping credit card accounts open, unless you have a compelling reason to close them, can also help build credit.

It’s important to note that debit cards, although they look like credit cards, are not the same. Debit card activity is not reported to credit bureaus as they take money directly from your bank accounts.

Authorized-User Status

Being an authorized user on someone else’s credit card allows you to make purchases without being obligated to pay the bill. This can help you benefit from the credit limit and payment record of the primary user. However, its impact on your ability to qualify for credit in your own name may be limited.

Installment Loans

Installment loans, such as student loans, cellphone loans, credit-builder loans, car loans, and mortgages, are generally reported to credit bureaus. These loans have level payments for a set number of months. Paying on time can help you build credit, while late payments can hurt your credit score. Credit scores reward consumers who have both revolving (credit cards) and installment credit, a factor known as “credit mix.”

The Bottom Line

In general, a bank account won’t help you build credit. However, managing your money effectively and sticking to a budget can be invaluable in managing credit responsibly. If you’re new to credit, money in your bank account might help you by serving as a security deposit for a secured credit card or loan. Using a credit card—secured or otherwise—and keeping balances low and paying on time can lead to a good credit score.

An installment loan can also help establish a positive payment history. You don’t need a credit card to build good credit, but using both credit cards and installment loans responsibly can be beneficial.

If you haven’t had credit before, you can create a credit report with Experian Go™, which will help you determine the best strategy for starting to build credit.

For expert mortgage services and personalized advice, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your financial journey and achieve your goals.

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