Do you know your credit score? If you are applying for a loan or credit card, your score is important. A credit score ranges between 300 and 850 and the higher the number the better. Potential creditors use the number to estimate whether a borrower will pay back a loan, determining whether to let the person borrow and with what stipulations. The higher the score, the easier it is to buy a house, a car, rent an apartment and even land a job. We have eight ways to build and maintain your credit score in honor of National Credit Education Month.
How to Build Credit
- Get a secured credit card. If you are building credit from scratch, this is a good first option. A secured card is backed by a cash deposit you make upfront, which is usually the same as your credit limit. It functions like any other credit card and you will receive your deposit back when you close the account. This is an option to help build credit, but these cards are not meant to be used long-term.
- Get a credit-builder loan. With these loans, the money you borrow is held by the lender in an account and not released to you until the loan is repaid. Essentially a forced savings plan, these repayments are reported to credit bureaus and can help build your score.
- Use a co-signer. It is possible to get a loan or credit card if someone with a solid credit score co-signs with you. This requires a lot of trust because if you don’t pay back the loan, the person who co-signed with you is on the hook for what you owe.
- Become an authorized user. A family member or significant other could add you as an authorized user to their credit card. This adds the card’s payment history to your credit files, so be sure it is an account in good standing.
Maintain your Credit Score
- Make payments on time. This is the most important thing you can do to maintain your credit score. Try to pay at least the minimum payment, and if you can pay more than the minimum, it will be helpful for your score. Setting up automatic payments through our online banking and bill pay makes this simple.
- Keep credit card utilization low. A good rule of thumb is to keep your card usage under 30 percent when possible and avoid charging anything you don’t have the money to pay for when the bill arrives.
- Avoid applying for multiple credit accounts close together. With each application comes a small, temporary drop in your score. Multiple applications in a short time can cause more significant damage. Try to space them out by at least six months if you can.
- Keep credit accounts open. Unless you have a compelling reason to close an account, like a high annual fee or poor customer service, consider keeping it open. Closing one can reduce your average account age, which can have a big impact on your score.
If you are ready to apply for a loan to finance your next big life event, like buying a car or a home, we are here to help with personal loans, auto loans, mortgages and more. Contact us today.
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