If you find yourself in a position where your credit score needs a boost, it may impact your ability to obtain a loan, a mortgage or even a job or an apartment application. You may also end up paying more in interest if you are approved. Whether you are just starting to establish credit or you need to rebuild it, the best place to start is making sure you understand The Basics About Credit Scores. Once you feel good about the basics, there are a few things you can do to start building good credit.

Understand your credit score

As we learned in The Basics About Credit Scores article, there are a number of factors that determine your credit score. An important factor is your available credit and debt levels compared to your income. For example, if you had $30,000 in available credit and your balance is at $29,000, this could be what’s sending your credit score into a tailspin. To improve your situation, start by paying down your highest interest loan or credit card first, while making the minimum payments on the others. After you have the first one paid off, continue paying down the rest. As you make progress, consider lowering your limits, so that you have less available credit and don’t find yourself in this position again.

It takes time to improve your score

Many people only consider their credit when they want to use it, which can be a problem if your credit score is low, as there is no “quick fix” for building credit. If you want to finance a vehicle but don’t have the credit score or history to support this, be prepared that it can take at least six months to two years to improve this number. In some scenarios, a co-signer might be an option. If you choose to go this route, be aware that sometimes lenders will ask that the loan be in the co-signers name only. This means that while you are the one making the payments on the loan, you are not receiving any of the credit building benefits that come with it.

Continue to save

Whether you are establishing credit or you’re working on paying down debt, setting money aside will help you prepare for the future. Having a healthy emergency fund will benefit you when it comes to planning or receiving an unexpected bill, helping preserve your credit building efforts.

Use credit to build your credit score

Having good credit makes it easier to get credit. Since your credit score indicates your credit-worthiness to lenders, if it’s low, it can be challenging to get approved for financing. There are a couple of lending options that can help you build your credit:

Secured credit card – A secured credit card requires the user to place a refundable security deposit when you open the account. The credit limit is often equal to 50% to 100% of the amount of the initial deposit. At CUA, a $500 secured credit card requires you to provide a $600 deposit. This card can be used the same way you would use any other credit card. After about a year of regular use and satisfactory repayment, consider applying for a regular credit card. Upon closing the secured credit card, you will receive your initial deposit back.

Microloan – Taking out a small loan and paying it off is a great way to build your credit. Because they start at as little as $500, it’s relatively low risk for the lender but has a big reward for you. Learn more about how a Microloan could benefit you.

Your credit is an important part of your financial picture, and just like your car, you should perform regular checks and maintenance. You can check your credit score for free once a year through Transunion or Equifax. By being proactive about your credit score, you are well on your way to achieving what matters most to you. If you would like to speak to a member of the CUA team about your credit score, give us a call at 902.492.6500.

Published Jul. 9, 2021