How Can Beginning Farmers Build Credit?

Farm Credit

Andrea D. Foore |
Posted on Apr 15, 2019

A good credit score is invaluable for young adults aspiring to be farmers. A solid credit foundation is essential when applying for a loan to purchase a piece of equipment or your first farm. Young adults often struggle with low credit scores due to a lack of time to establish a credit history, experience and wealth. This is something that I have seen recently, not only in my experience as an agricultural lender, but with my family and friends.

I grew up on my family’s farm in York County where we had a small herd of Registered Black Angus show cattle. Through the 4-H and Junior Angus programs, I made many friends with similar agricultural backgrounds. As we got older, some of us pursued college degrees while others continued to work on the family farm. Yet, regardless of which route we chose, we all encountered the same hurdle in establishing credit.

While student loans can be a burden, they are an excellent way to establish credit as long as the individual pays the loan on time. How can those who pay for their own college or trade school, enter the workforce, or continue the tradition of working at their family’s farm establish credit?

One way a young adult may begin to develop a solid credit foundation is to obtain a credit card, which helps establish good financial behaviors when used responsibly. I have always advised my millennial friends to use a credit card for small purchases they know they can pay off every month such as groceries, gas, or even a Netflix account. It is important to pay off the balance every month and not live beyond your means. Therefore, I do not advise using a credit card for larger purchases except in cases of an emergency.

A credit card enables you to show that you have a credit account that is paid off every month and has no late payments. The regular, on-time payments are what is laying the foundation for your credit. Additionally, keep in mind that it is not wise to apply for multiple cards at once since this may decrease a credit score.

Secondly, securing a small loan under $10,000 is another method to help build a solid credit foundation. I have repeatedly encountered young farmers who have purchased their vehicles or equipment without the use of a loan. They often do not want to incur debt or pay interest on their purchase. While this thought process has good intentions, it is very helpful to earn credit experience with small auto or equipment loans managed responsibly and paid consistently. Then, when they are ready for a larger purchase, such as a farm, they have this loan history on their credit report. 

I also suggest setting up automatic payments on credit cards and loans to ensure that you will not encounter late payments -- or even worse -- late fees.

To explore the credit card and loan options available, consult a local bank or lender that you trust. These professionals will provide guidance on which banking products and services are best for your situation. If the bank requires a cosigner, a parent or other family member may act in this capacity. Their experience and good credit history may allow you the opportunity to build your own credit foundation.  

The most important advice I can give to beginning farmers looking to establish credit is not to be afraid to ask many questions. Seek advice from your parents and banking partner to develop an action plan and begin establishing a good credit foundation. This is just one step in making your dream of becoming a farmer a reality.

Andrea D. Foore, Agribusiness Loan Officer

Andrea D. Foore
Agribusiness Loan Officer