The long-term benefits of having good credit can be very rewarding. When you have a good credit score, you’re offered lower interest rates and higher loan limits because you’ve proven to lenders that you can borrow and pay back loans in a timely manner.
Also, having good credit gives you advantages when renting or purchasing a home, according to Nerdwallet. In this blog, we will discuss these benefits and ways you can plan better to increase your credit score.
How Your Credit Score Is Determined
- Payment History shows lenders how you tend to pay your monthly bills. On-time payments over a long period of time are good for your score. Repeatedly making late payments, however, can lower your credit score, so be sure you pay your bills by their due date every month.
- Credit Utilization measures how much of the available balance on your active accounts is being used. Typically, credit cards should remain below 30% utilization; anything higher and it could lower your credit score. Keeping your credit utilization consistently below 30% over time can significantly increase your credit score.
- Credit Age is the amount of time a credit account has been opened. The longer the account has been open and active can help boost your credit score.
Building a good credit score is key to borrowing money, especially if you want to rent or buy a home in the future. There are ways you can raise your credit score, according to Equifax.
How to Raise Your Credit Score
Credit history takes time to build and knowing how to jumpstart your credit score will help you reach your financial goals. Here are some ways to increase your credit score.
- Pay Bills on Time: Because payment history is a major factor in increasing or decreasing your credit score, it is essential to pay your loans on time. This means every type of credit payment: credit card, mortgage, auto, personal loan and other lending accounts. By building a good record with each lender through on-time payments, you should see your credit score rise.
- Utilize a Secure Credit Card: When you first start building your credit history, you may discover that you are being declined for loans because of a lack of credit. One way to get around this is to apply for a secure credit card from lenders such as Travis Credit Union. This type of credit card requires the borrower to provide the money upfront to cover the limit of the credit card. For example, a card with a $500 credit limit will require $500 upfront from the borrower to be kept in a special account by the lender. After a period of time, the borrower will have built up credit to switch to a normal credit card.
- Become an Authorized User: You can build your credit score by becoming an authorized user of someone who already has good credit. An individual with a credit card may add you as an authorized user on their account, which will help you build your credit history.
- Keep Credit Cards Under 30% Utilization: Be sure to keep all lines of credit under 30% utilization. This will help show the credit bureaus that you’re a responsible borrower who does not utilize their entire credit limit.
When it comes to raising your credit score, build a positive payment history and do not max out your credit cards. You can also become an authorized user on an established credit card or apply for a secured credit card to build credit.
Credit Score and Lending Options
Having a good credit score will save you money because you will be offered lower interest rates. It is important to note that credit score requirements and rates vary by lender. With a great credit score, you will be able to shop around and find one that offers you the lowest interest rate.
Most lenders will use your credit score to determine if you are credit worthy for auto loans, credit cards, personal loans and mortgages. Credit scores range from excellent to bad. Here’s the general breakdown:
- 720 to 850: Excellent
- 690 to 719: Good
- 630 to 689: Fair
- 300 to 629: Bad
Lenders may have different credit ranges. Again, shop around to find the lender that will give you the best rate.
Your Credit Determines Your Homebuying Power
When you’re ready to buy a home, lenders will review your credit score, income and debt-to-income (DTI) ratio to determine if you qualify for a home loan. Having good credit gives you a better chance at lower interest rates and better loan terms. You may also have more negotiating power because the lender will view you as a preferred borrower and may offer extra incentives so you will apply for a home loan with them.
How TCU Can Help
Travis Credit Union is focused on your financial wellness and can show you how to understand and build your credit so that you’ll be able to achieve your financial goals. You can start with TCU’s secured credit card and then work your way to an auto loan. When you’re ready, Travis offers various types of home loans and local experts who will help you become a homeowner. Get started at traviscu.org and learn how TCU can help you better plan, save, spend and borrow.