Your credit report and score is used by lots of different people to gauge your personal responsibility and ability to properly manage your money. Landlords, employers and lenders alike use these tools to determine whether or not you are eligible to receive a loan, rent an apartment, obtain car insurance or get a job.
If you are just getting started, there’s no better time than now to start building a solid foundation of positive credit that you’ll be able to use to achieve all of your future goals. However, if you have less-than-perfect credit, you’ll want to do everything you can to improve your credit standing. Your credit report and score work to determine your overall credit rating, and should be the first things you look at when working to establish good credit.
Step One: Your Credit Report
A credit report contains information about your history, debt and credit behavior. For example, the amount of debt that you have, your payment history and the frequency that you apply for credit will all be contained in this report. Your credit report information is used to evaluate your credit history and to create your credit score rating. It is possible to have information on a credit report even if you have never applied for credit before, so it is important to obtain a copy of your credit report so you can see what is on it.
Step Two: Your Credit Score
A credit score is a three-digit number that is used to quickly determine your credit rating. The three-digit number tells lenders, individuals and business owners whether or not your credit is considered to be “good” or “bad.” This score can range from the low 300s (which would be “bad” credit) to a perfect “good” score of 850. The higher your score, the more likely you are to receive an offer of credit and a lower interest rate on a loan.
Step Three: Paying On-Time
One of the most important factors in your credit history that determines your credit score is your ability to pay your bills on-time. This doesn’t just mean credit cards, mortgage loans and other credit accounts, but also cell phone bills, cable or satellite TV bills, utilities, medical bills and even unpaid traffic tickets. Not paying these bills at all or even having a track record of not paying them on-time can result in a poor credit score rating.
Step Four: Available Credit
The amount of credit that you use out of the amount of credit that you have available to you is also a determining factor in your credit score. Credit cards that are maxed out or mortgage balances that don’t seem to ever go down can all work against you. A credit card balance that is lower than 30 percent of your overall credit limit on average will help to increase your credit score. A $1,000 credit card should never carry a balance of more than $300 on average. Paying your bill in full each month will also help you to build good credit and stay on top of your finances without getting in over your head with debt.
Step Five: Credit Value
How important is credit to you and your finances? A credit card can be helpful in case of an emergency, but it can end up costing you a lot of money in interest and fees if you carry a large balance for a long period of time or purchase things that should be purchased with cash. Having a bad track record with your credit card payments and history, such as just paying the minimum balance on a maxed out card or paying late on a regular basis, can impact your credit score, costing you a lot of money in interest each year. Even just a few missed payments can increasae your interest rate by three percent, costing you thousands of dollars over the life of your loan.
Step Six: Breaking the Cycle
If you have a bad credit score, or recognize some of these bad debt behaviors in yourself, it’s not too late to break the cycle. Even a low credit score in the 300-range can be fixed over time if you are willing to commit to making positive change in your financial behavior. One of the best ways to improve your credit is to work with a New Bedford credit union. Credit unions help individuals to establish good credit, build that credit over time and establish a positive working relationship with a local financial institution. Understanding that good credit is important is key to improving your overall credit score rating.
St. Anne Credit Union serves the people who work and reside in the Bristol and Plymouth Counties of Southeastern Massachusetts. Located conveniently in New Bedford, St. Anne has a lot of unique savings and investment opportunities that can help you to improve your saving habits and boost your credit score. Joining a New Bedford credit union is a great way to learn how to better manage your money. With many different types of savings, checking, investment and lending opportunities, you can be assured that St. Anne Credit Union will have a solution that is right for you.