Credit 101

Having good credit can help you with almost all of life’s major decisions like buying a car, buying a house, getting a new job, and more. Good credit can also help you save money on insurance, utilities, and even cell phone services. But establishing and maintaining a good line of credit is not always easy and it is important to understand what it takes to build strong credit.

Let’s start at the beginning. Credit is your ability to borrow money and make purchases under an agreement that requires you to pay back the entire amount at a particular time. Usually, an interest charge is tacked onto the loan, meaning you have to pay back more than the amount that you borrowed.

There are two important aspects to credit… credit reports and credit scores.

Credit Reports: A credit report is a detailed summary of your personal credit history. When you apply for a loan or a credit card, the lender will most likely run a credit report on you from either Experian, Equifax, or TransUnion. Credit reports include the dates that accounts were opened, loan amounts, current balances, and payment history, including delinquent payments or defaults. Your overall credit score will be part of the credit report.

Credit Scores: There are five different factors that go into calculating a credit score, which ranges from 300 for borrowers with bad credit to 850 for borrowers with pristine credit. These factors include:

  • Your payment history
  • How much total debt you have
  • How long you’ve had credit
  • How much new credit you have
  • What types of credit you have used (do you have a good mix of types of loans in your history?)

Note: Your score can be negatively impacted by the number of credit inquires, so think twice about impulsively opening a store credit card just to get that 10-15% discount. Credit inquiries count (against you)!

Credit Monitoring: Keeping tabs on what is in your credit report ensures that your credit history is accurate and that nothing has been tampered with without your knowledge. A good rule of thumb is to pull your credit report for free from one of the three bureaus mentions and make sure nothing is out of the norm. We’d be happy to help you with this at the credit union.

The big lessons here are to stay on top of the details of your credit report, prove you’re a good borrower by making your payments on time, every time, and keep your credit card balances low (typically less than 30% of your total credit card line), and make sure you monitor your credit regularly for any unusual activity.

Remember, if you ever need any help with your credit report, pulling your report or even trying to maintain or clean up your report, the credit union is here for you and offers free One on One Financial Counseling to all our members.

Until next time,
chelseaSpringli_signature
Chelsea Springli

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