Understanding your credit is easier than you may think. Building it properly has its benefits. It can help with all financial aspects of your life from buying a car or home to getting a job. That three-digit number can be an important building block in establishing a solid financial foundation.
Sometimes, though, life can throw us curve balls that leads to the unexpected, like a pandemic, a temporary loss of income, or an illness. Improving your credit may take time and patience, but it is worth it. If you have run into a bump in the road or experienced an unexpected hardship in your finances, there are programs to help.
GreenPath certified counselors are available to talk with people about why credit matters and how it can be seen as a building block to achieving financial health and wellness.
Why is a Good Credit Rating So Important?
Juggling your credit is possible with proper planning and knowledge to get a better handle on your financial future. It is helpful to understand how it can impact you, your family, and your goals for the future.
Credit scores are increasingly important as the economy continues to recover, and more people apply for loans, rent, and buy homes. Credit scores are often used to decide who is a good risk based on previous financial history.
Having a Good Credit Score Can Save You Money
So, what exactly does all this mean? A good credit score is part of a path to provide opportunities you may not otherwise be able to access. Typically, lower interest rates are offered to people with better credit scores, which means more money staying in your pocket. It’s also easier to get a loan or line of credit. Many companies require at least a fair credit rating before they will even consider doing business with you.
How is Your Credit Score Determined?
Your FICO Score (Fair Isaac Corporation) is a three-digit number based on the information in your credit reports. It helps lenders determine how likely you are to repay a loan. This, in turn, affects how much you can borrow, how many months you must repay, and how much it will cost (the interest rate).
When you apply for credit, lenders need a fast and consistent way to decide whether to loan you money. In most cases, they’ll look at your FICO Scores, which tracks your history with credit card debt. GOLD understands the importance of credit scores and history, but will also take the time to get to know you even better by analyzing your overall financial picture to determine how to help you build and maintain good credit.
There are several factors that help determine your credit score. Understanding them can help you navigate the path to financial success:
Payment History (35%): Are you paying your bills on time? Keeping up with your payments and having a history of doing so, is a big factor in your credit score. If you’ve fallen behind, or need to get back on track; you can set up automatic payments, set reminders, maintain a monthly budget or savings plan.
Amounts You Owe and How You Use Available Credit (30%): Know your credit limit and keep your balances low (30% of available credit or less).
If your balances are high, create a proactive plan to pay them down.
As you are working to pay down balances, stop using the card altogether. Also, instead of paying the minimum, you may want to consider increasing your monthly payment.
Length of Credit History (15%): How long you have had a line of credit open can help you.
Review your credit report to see how long it has been open.
Keep accounts active. If possible, keep older accounts open. The longer a credit line is open, the more it helps you in the long run. Subscription payments can be a great way to keep an account active, without racking up higher interest charges.
Types of Credit You Use and Your/Credit Mix (10%): It’s important to have a combination of revolving accounts and installment loans. This shows your ability to responsibly handle different types of loans like auto loans, personal loans, or student loans.
New Credit/Too Many Lines of Credit (10%): Opening a new account is certainly okay, but opening five accounts at once … well, that may raise a few red flags. When you apply for credit, it’s important to remember:
Applications for new credit stay on your account for two years.
When you do apply, it can cause a slight dip in your credit score.
Handle any new accounts you open responsibly to avoid negatively impacting your credit.
If you’re taking on too much credit, it could signal that you’re having financial issues.
Why Credit Matters
Establishing good credit shows that you’re responsible and you’re ready to start building a positive future for yourself, and the teams at GOLD Credit Union and GreenPath are happy to lend a helping hand.
If you’re not where you want to be in terms of your finances, start today by understanding your credit and put a plan in place that’ll help you move forward. Free help is available through our partners at GreenPath. You’ll benefit from financial assessments, housing counseling, credit report reviews, debt management, and more. Request a call with a GreenPath financial expert.