How to Build Strong Credit

Your credit score – how it’s calculated and how to build strong credit.

Your credit score is important – it can influence your eligibility for a loan, the rate you’re qualified for, and it can be a factor in a landlord’s decision in choosing to rent property to you. That’s why your credit union wants to share important details about your credit score, where to view your credit score, and how to build good credit.

What’s a credit score and how is it calculated?

Your credit score is a calculation based on details in your credit report. It helps lenders and other interested parties anticipate how likely you are to repay a loan and make payments on time. Some information from your credit report that is often used to calculate your credit score is:

  • how much money you owe
  • whether your payments have been on time (or late)
  • the duration of your credit history
  • how much new credit you have
  • whether you have applied for new credit recently

Credit scores generally range from 300 and 850. A higher score is considered “good” credit and indicates that you represent a lower risk to the lender, while a lower score may be referred to as “bad” credit and designates a higher risk borrower. In summary, if you have a low credit score, you may be unable to get the loan you want, or you may have to pay a higher interest rate on approved credit.

Interested in finding your credit score? Get yours for free from Experian.

How to build strong credit with no credit history

  1. Build credit by paying monthly utilities, a phone bill or rent (you may have to request that your landlord or utility provider report your positive payment history).
  2. Apply for a secured credit card or secured loan – a credit line backed by a cash deposit you make when you open the account.
  3. Ask someone with established credit to co-sign on a loan for you or to add you as an authorized user on their credit card (this will only be helpful if you can do this with a trusted family member or friend with good credit).
  4. Save a down payment prior to seeking a loan.

How to improve a low credit score

  1. Make all payments on bills on time. If you’re having trouble making a payment, contact the lender or provider before your payment is late.
  2. Maintain a low debt-to-income ratio (DTI). To calculate your DTI, divide your total monthly bills (ie: credit card payments, loans, etc.) by your gross monthly income (the total amount you make each month before taxes). Ideally, your DTI should be 30% or lower.
  3. Apply for a secured credit card or secured loan.
  4. Be purposeful when applying for credit. Applying for unnecessary credit just to increase your credit mix can create too many hard inquiries on your credit report or encourage you to take on too much debt.

Looking for personalized assistance regarding your financial situation? Give us a call at (209) 444-5300 to set up a financial planning appointment today.