Building and Repairing Credit
Credit is your financial reputation. It determines how much people are willing to lend you and your ability to buy something over time. Below are strategies and information about how to build your credit in a calculated way.
Credit Scores and Reports
This video provides information about credit, ways to effectively build credit, and what to do when you are eligible for a credit card. If you specific questions about your own credit that isn't addressed, please consult a CEO staff member or a certified professional.
What is a Credit Score?
A credit score is a grade that is given to your credit report. It represents how well you have managed your financial obligations. The scores range from 300 to 850. The higher the score, the better the credit and the lower the risk for the lender. The scores are made up of 5 main factors: Payment History, Account Balances, Credit History Length, Types of Credit (student loans, credit cards, mortgage payments), and Credit Inquiries.
What is a Credit Report?
A credit report is a detailed report of your credit history. The three credit bureaus (Experian, Transunion, and Equifax) all collect the information for the reports. You can obtain a free copy of your credit report from each of the credit bureaus without your credit score taking a hit using the link: www.annualcreditreport.com.
Why is Good Credit Important?
- It reduces your cost of borrowing money
- It increases the amount you can borrow (never borrow more than you need)
- You will need good credit to rent or buy a house
- Your employer may request a credit check if you are a prospective employee
Who Can Request Your Credit Report?
Banks and Credit Unions
Banks and Credit Unions need your credit report to assess your ability to pay off debt and eligibility for credit cards.
Insurance Companies will check your credit report to see your ability to pay off debt and to assess whether to provide you with a loan.
Landlords and Employers
Landlords will look over your credit report to decide whether you will be a responsible tenant. Employers can ask for your written consent to review your credit report.
Steps to Building Credit
- Check your reports for errors or evidence of identity theft using this guide from Experian and this Checklist
- Fix any errors by filing a dispute with the credit bureau(s) - they must respond within 30 days
- Start to build credit in a responsible way
What is a Secured Credit Card and How Does it Work?
A secured credit card allows an individual to rebuild their credit if they have either no credit or damaged credit. The banking institution takes a deposit (or collateral) and this becomes the established credit line (the amount of money you cannot exceed per month). For example, if you put down $500, then you will not be able to exceed that amount per month. If you exceed the credit line or cannot pay back the monthly amount, the banking institution can keep your deposit, so make sure you are able to make your monthly payment. Additionally, reviews on your payments are checked periodically, so if you are in good standing, you may qualify for an unsecured credit card.
What is a Credit Building Loan and How Does it Work?
A credit-building loan is similar to a secured credit card in that they both help you build credit and use collateral to ensure on-time payments. You have to be able to afford the amount that you would like lended to you, meaning you have to put down that money up front in order to qualify for the loan. You also have to provide a source of income in order to qualify. If you make payments on time and in full, you will qualify for an unsecured loan. If you have a payment that is more than 30 days late, it will seriously impact your credit score, so make sure you have money to pay off the monthly payment.
What should i do when i am eligible for an unsecured credit card?
When you are eligible for a credit card, you should pay attention to what your credit line is. You should never be paying more than 30 percent of your line. For example, if your credit line is $1,000, you should not be charging your credit card more than $300 every month. In addition, you should always pay your bill on time and in full. If you pay the minimum payment, the credit card company can charge you interest, which could force you to pay hundreds of dollars extra in the long run. Monitor your account activity regularly online and on your phone to check your balance and any suspicious activity. Lastly, call your credit card company right away if you experience any suspicious activity on your account.