Building Credit 101

Building Credit 101

Having a good credit score is incredibly important. Not only does it define your creditworthiness but it can also be a blueprint for financial institutions to see your monetary situation. Today’s economy runs on credit score based decisions. Have you ever heard of the saying “First impressions are everything?”  That’s the type of approach you should take when trying to construct a strong credit score. Here are a few tips and tricks on how to build good credit and keep it there.

  • Pay your bills on time. Don’t be late on payments or have any delinquent cycles. Being late with a single payment is typically not as harmful as being late with two or more consecutive payments.But, if it becomes a habit, most lenders find that sort of carelessness worrisome or could potentially lead to a serious problem. If you have any collection accounts, you definitely want to rectify the situation as soon as possible to avoid negatively impacting your credit score.
  • Start secure. If you’ve never had a credit card or loan, you might not have a credit or FICO score. This can make getting approved more difficult. Start with a secured credit card that has a low limit. This will build some credit history and help you reach that next step.
  • Be mindful of your balances. Keep your balances on your revolving debt low. The bureaus are content with you using less than 50% of your credit cards or lines of credit. But, to really boost your credit it should be 30% or less. Maxing out credit cards can damage credit scores by 10 to 45 points. Additionally, you should pay your debts off every single month and not carry balances. Why pay interest on something you could have paid cash for? You want to portray the picture of a borrower utilizing their credit options but not having to depend on them. If you are consistent with this method you should see your score continue to climb.
  • Avoid closing unused accounts. I know it doesn’t seem beneficial to leave a card or line of credit open that you aren’t using but that is not true. If you have paid off those loans and lines of credit that are in good standing, you should keep them open to show stability and tenure. Some experts believe it is important to have credit accounts open for a minimum of seven years! So if you just applied for your first credit account, plan to keep it open as long as possible.
  • Take advantage of your free credit reports! Did you know 79% of credit reports contain errors; one in 4 unemployed Americans have been required to go through a credit check when they applied for a job and one in 10 has been denied a job due to information on their credit report! That’s why it is so important to review your report regularly.

There is so much that goes in to determining those three digit scores but hopefully these tips will set you up with a strong foundation. Also, this may be the difference between a good and great credit score. So lay down the ground work and watch your credit grow!

This blog post was written by Rebecca Smith, FTWCCU Financial Services Representative.