Many financial goals require good credit. Your credit score not only affects how much you pay for large purchases like cars or homes, but it could affect things like employment, as some employers check credit as part of background checks. If you want to make many of life's financial situations a lot easier and less costly, consider working on building or improving your credit. If you've made financial blunders in the past, your credit score may not be as high as you'd like. You’re not alone. If you have taken missteps in the past, you won't be able to instantly remove them from your credit report. However, you can take steps to build a more positive credit history moving forward.

Credit is one of the most important aspects of your financial life. Unfortunately, many people don't understand credit and the credit-building process. There are many myths about credit; like once a credit score is bad it can never be rebuilt. Or that you can pay a credit repair company to quickly fix your credit, but beware as these activities are often a scam or provide no real benefit. There’s no quick way to boost a credit score when all the information on a credit report is correct. Only the passage of time and good credit management will make accurate negative information disappear from your credit reports. Credit cards and loans can be a useful tool to help you manage your finances and can help you build or rebuild a healthy credit history when used responsibly.

Below are some of the most common factors that can affect your credit. Your credit report will not only show your score, but will show your credit and retail cards, personal loans, public records, collection items and any inquiries that have been made. Credit scores are calculated using different pieces of credit data from your credit report.

Factors that Influence Your Credit Score

  • 35% - Payment history — which is a record of all your on-time payments you make as well as late or missed payments.
  • 30% - Total debt— the total amount of debt you have including credit cards, loans, collections and other credit accounts.
  • 15% - Length of credit— how long you have had credit established and this looks at your credit-age going back to when you first established a credit account.
  • 10% - New credit— opening new accounts, but be careful not to open too many, especially around the same time period.  
  • 10% - Mix of credit— the types of credit accounts you're using plays a factor. Secured debt like auto and home loans should be mixed in with unsecured credit like credit cards and personal loans.

 
Below are four steps you can take to help build or rebuild your credit.
 
1. Take Steps to Correct Errors
We recommend downloading your complimentary full credit report from www.annualcreditreport.com. This will give you an accurate picture of all reporting and allow you to review for any errors you may need to dispute. While reviewing your report, you will want to make sure everything is accurate. You will have a better understanding of your current creditworthiness and be able to request an investigation of any errors or inaccuracies you find. For example, if an outstanding debt was paid as agreed and still shows not paid, you can request an investigation with the credit bureau which has 30 days to respond to your request. If the creditor cannot provide proof to validate the claim, they must delete the information. The next step is to check your score. Many credit card and loan companies provide credit scores for customers on their monthly statements, but you can also use a free credit score service or site that can provide your score.  You'll get a list of the credit score factors that are impacting your score the most. The best way to know what factors are affecting your credit scores is to look over them often.
 
2. Consider Secured Credit Cards
Secured credit cards can be a good option for building or rebuilding your credit, and you can apply for this card as you would a traditional credit card. These cards function like normal credit cards, except you must first deposit an amount of money, which usually at least 20% more than your approved credit limit, into a separate account which is used as collateral. For example, to receive a $1,000 credit card limit, you would need to secure a savings balance of $1,200. Generally, you can build credit with a secured card, but be sure to ask your card issuer about whether they report secured cards to the credit reporting companies. Since payment history accounts for 35% of your credit score, paying on time and managing your balance will help improve your credit score since it is reported monthly to the credit bureaus. So be sure to make all payments as agreed and never miss a payment. After raising your credit score, you may be able to qualify for a regular credit card. Let SDCCU help you build your credit by opening a Share Secured Credit Card at SDCCU. 
 
3. Take a Look at Secured Loans
A secured loan is designed to help you establish credit, especially if you have little or no credit history. This is the perfect loan for borrowing money and paying yourself back with the lowest possible finance charges. Best of all, the secured amount is earning dividends for you over the life of the personal loan. Secured loans do not require good credit for approval. However, they do require you have enough income to make payments. These loans can help those without credit get on the credit score radar. These loans can also be a good choice for credit newbies. A Consumer Financial Protection Bureau analysis of about 1,500 consumers released in 2020, found that credit scores of participants who did not have existing debt went up 60 points more than those who had existing debt.  
 
4. Ask for Help from Family and Friends
Your family and friends may be willing to help you build your credit by making you an authorized user or joint user on their credit card. This is a great strategy for improving credit quickly but it works best if the primary user's card has a long record of on-time payments, a high credit limit and the authorized user doesn't have recent blemishes on their credit report. Make sure the card issuer reports authorized users to the credit bureaus, because if your authorized user status doesn't show up on your credit reports, it won’t help your score.
 
These tips should help you get started on improving your credit. Check your credit report at least once a year and check your credit score frequently to make sure you’re making progress. Select a payment method that works best for you to ensure you pay your bills on time, lower your credit utilization and create smart spending habits to help improve your credit.

SDCCU members with an active loan in good standing can view their FICO Score® in Internet Branch online banking.

Visit our Financial Knowledge Blog to learn more tips on setting up a solid financial future or join us for Financial Wellness Wednesdays.