How can I build or repair my credit?

What will we cover?

What is a credit score?

Why is my credit score important?

What factors impact my credit score?

How can I start the credit building process?

What can I do to get on the right track?

How long will it take me to build my credit score?

How do I check my credit score?

What is a Credit Score?

• Your credit score is a three-digit number, typically between 300-850, derived from detailed information about your credit, or payment, history.

• There are 3 major credit bureaus: TransUnion, Equifax and Experian

• These bureaus do not use the same data to calculate your score. Lenders may not use the same bureau to obtain your score when you apply for a loan. This is important to keep in mind as your score may be slightly different from one bureau to the next.

For more information on credit scores, check out myFICO.com.

Why is my Credit Score important?

• Most commonly, lenders use your credit score to review your payment history when you apply for a loan to determine the interest rate and terms.

• Other organizations such as insurance companies, retailers and potential employers may also use your score as a measure of trustworthiness.

• Good credit is associated with a high level of trust so lower costs and lower interest rates are entrusted to those who show credit worthiness.

• Even if you are not planning to use credit anytime soon, it’s a good idea to start thinking about building credit history. If you already have established credit that needs a little attention, it’s never too late to rebuild or repair your credit.

What factors affect my credit score?

Your credit score, also known as your FICO score, is typically made up of the following factors:

• Payment history• Debt level• Length of credit history• Credit inquiries • New credit and types of credit in use

Payment History : 35% Making bill payments on time is not only a good habit, it's a great way to show lenders

that you’re managing your finances responsibly and maintaining your obligations. Let’s take a look at which factors affect payment history:

Loan repayment history Paying bills late has a negative effect on your score.

Timeliness of paymentsTaking longer to make payments may result in a lower score.

Charged off and collection accountsThe only true way to remove something from your report is to pay it.

Debt Level : 30%Debt level is the second most important factor in determining your credit score because it takes into account how much credit you are currently utilizing and how much you have available to you, so it's a good rule of thumb to keep your debt levels low. Let’s see which factors are considered when it comes to assessing debt level.

Total available credit vs. the total amount owedUsing a lower percent of your available credit is a good habit to maintain and can have a positive impact on your score.

What types of credit do you owe?For example, paying towards a mortgage loan is more favorable for your score than holding a high balance on your credit cards.

Length of History : 15% Your credit report takes into account the length of time you've been building your

credit, so the longer the history the better off you are. Let’s look at what factors are deemed important to the length of our credit history.

• How many years have you been using credit?• How old is your oldest credit account?• How new is your newest credit account?• What is the average age of all your credit accounts?• How long since you’ve used your credit accounts?

A long history is definitely a good thing but a short history can be OK too, as long as you've made your payments on time and don't owe too much.

Inquiries & New Credit : 10% Each time you apply for a credit account (credit card, loan, mortgage, etc.), an inquiry

is notated on your credit report. If you apply for too many at one time, it can have a negative impact on your score because new accounts will lower your average account age. This category looks at the following variables when determining the impact on your score.

• How many new credit lines do you have?• How long has it been since you opened a new credit line?• How many recent inquiries do you have?

Types of Credit : 10%

Different types of credit can affect your credit score in different ways. There are two major types of credit repayments: installment credit and revolving credit.

• Installment credit, like a mortgage or auto payment, closes the loan once the final payment is made and repayment is complete.

• Revolving credit, like a credit card, is open-ended and the funds that you repay are made available to be borrowed again, which means that it can be used over and over again.

Generally, it's good to have different types of credit lines available to you, but only if you are able to manage the payments and keep your debt-to-income ratio in a reasonable range.

How can I start building credit?

Building your credit can sometimes seem like a chicken-and-egg conundrum. How do you get one without the other? Here are some options to get on the right track.

• Build a good payment history. Pay your bills, credit card payments and rent on time. Every little payment is a step toward building good financial habits and proving your dependability as a trustworthy borrower.

• Apply for a secured credit card. A secured card is a great option for those with little to no history. The card is “secured” with a cash deposit which gets released to you upon the final payment. Your payments to the card will be reported to the credit bureaus and help you to build a dependable credit history.

How can I start building credit?

• Get a Credit Builder Loan. A Credit Builder Loan works similarly to a secured card, however, doesn’t require an initial deposit in order to build credit. The payments you make to the loan will be recorded and shared with the credit bureaus as a sign of your reliability. Once you complete the loan payoff process, you'll receive your loan principal and the interest you've paid.

How long will it take me to build my credit score?

• It depends on the length of your history of payments, as well as the situations notated on your credit report. If you have little or no credit history, which is typical with young people, the length of time may be different than if you have to repair your credit history due to delinquent payments or being referred to collections.

• Improving your credit score is a step in the right direction when it comes to building your history and using credit responsibly. After some diligent work, you may be ready to apply for a vehicle or home loan with confidence.

How do I check my credit score?

• At Annual Credit Report.com, you are allowed one free credit report a year from each of the three major credit bureaus (Equifax, Experian, and Trans Union).

• When you first start building credit, obtain all three reports so you can get a baseline score. Ensure your information is accurate and if it’s not, remove errors by contacting the bureau.

• An additional low-cost option is IDProtect+, an identity theft and fraud protection product, offered by RBFCU. This service also provides users with a credit report and score every 90 days.

IDProtect service is a personal identity theft protection service available to account owner(s) and their family. Family includes: Spouse, persons qualifying as domestic partner, and children under 25 years of age and parent(s) who are residents of the same household. Service is not available to a "signer" on the account who is not an account owner. Service is not available to businesses and their employees, clubs and/or churches and their members, schools and their employees/students.Identity Theft Insurance underwritten by insurance company subsidiaries or affiliates of Chartis Inc. The description herein is a summary and intended for informational purposes only and does not include all terms, conditions and exclusions of the policies described. Please refer to the actual policies for terms, conditions, and exclusions of coverage.Registration/activation requiredCoverage may not be available in all jurisdictions. Insurance products are not deposits; not NCUA insured; not an obligation of Randolph-Brooks Federal Credit Union (RBFCU); and not guaranteed by RBFCU or any affiliated entity.

Final thoughts…

• Keep balances low on revolving credit (e.g. credit cards) since high outstanding debt can affect your credit score.

• Late payments have the greatest negative impact on your score, so strive to make payments on time.

• Recent activity on newer accounts positively affects your credit score more than older activity.

• Avoid opening a lot of new credit accounts at the same time especially if you don’t have an established credit history.

• Lenders determine your creditworthiness by what they see on your credit report so do your best to keep it clean and check it regularly in order to handle any discrepancies.

“Too many people spend money they haven't earned, to buy things they don't want, to impress

people that they don't like.”

-Will Rogers

For further information or questions, please contact the

Financial Education Department at financialeducation@rbfcu.org