Managing Your Credit

Control Your Financial Future
Whether you need to establish a credit history, fix your credit status, or maintain the good credit you've got, organizing your finances is key. Free online account access with your mortgage company can help you keep track of your income, expenses, and loan payments. 

How to Establish Credit
If you've always paid cash or used checks to make purchases, and haven't used credit, it's a good idea to start. A solid credit history can help you borrow money for a big purchase like a house or car, get better rates, or even get the job or apartment you want.

At first, credit may seem like a catch-22 — you can't get any because you don't have a credit history. In fact, many lenders will consider a nontraditional credit history if you have a limited credit history or no credit history. Presenting a series of paid receipts and cancelled checks for rent, utilities, and car insurance payments made on a consistent basis can help you document a pattern of paying your monthly obligations on time.  In addition, there are a number of things you can do to start establishing credit:

Put your apartment and utilities in your own name
This allows you to establish a regular payment history under your own name and Social Security number.

Get a credit card
If you have no credit history or have been turned down for credit in the past, the Secured Visa Card is a great first step toward building a good credit history.
A Secured card allows you to spend up to the credit limit you establish by funding your Secured Card Collateral Account, which is held as security for your credit card account. You may be eligible to graduate to an unsecured credit card in 12 months.1

Start credit with a local business
Apply for department store and oil company credit cards. Don't get a new store credit card every time you get a discount offer, but it's good to have one or two cards to start your credit history.

Use your credit wisely
To start building your credit history, use your card to make purchases, but don't go over your credit limit, and pay your bills on time. Pay at least the minimum payment due each month, or more if you can. For more tips on smart credit use, read "How to Maintain Good Credit." 
 

• Always pay at least your minimum monthly payment.
• Paying more than the minimum or even the whole payment each month will cut down on the finance charges you owe.
• Don't skip any payments.

Make timely payments

• This is one of the best ways to establish yourself as a good credit risk to future lenders.
• Be organized. Put all your bills in one place so you don't lose them or forget about them. Keep a list of the bills you have due, and if it will make it easier for you to remember to pay them, make them due on the same day each month. (Contact your lender to change your payment due date.)
• Pay attention to the payment due dates to ensure your payment arrives on time. Mail your payment — or schedule an online payment through Bill Pay — at least a week before the due date.
• You can also sign up for automatic loan payments from your checking account.
• If you're moving, fill out the change of address form on your statement — or change your address through your creditor— to ensure that your statement goes to your new address.

Stay in touch with your creditors
Contact your lenders immediately if you fall behind on your payments. Most creditors are willing to set up alternative payment options, especially if you inform them right away of your situation.

Tips for Raising Your Score
Raising your credit score is a bit like losing weight — it takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. Follow these suggestions from Fair Isaac Corporation, the creators of the FICO® score.

Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score.

If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score. But also be aware even if you pay off a collection account, it will stay on your report for seven years.

Contact your creditors or a legitimate credit counselor if you're having trouble making ends meet. This won't improve your score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

Lower your amounts owed

• Keep your balances low on credit cards and other "revolving credit." High outstanding debt can affect a score.
• Pay off debt rather than moving it around. The most effective way to improve your score is by paying down your revolving credit.
• Don't close unused credit cards as a short-term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your score.
• Don't open new credit cards you don't need, just to increase your available credit. This approach could backfire and lower your score.

Make the most of the length of your credit history
If you've been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

Getting new credit

• Do your rate shopping within a focused period of time. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
• Re-establish your credit history. Even if you'd had problems in the past, opening new accounts responsibly and paying them off on time will raise your score in the long term.

Manage the types of credit you have

• Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix — it probably won't raise your score.

• Have credit cards — but manage them responsibly. In general, having credit cards (and paying them on time) will raise your score. 

If you feel you have credit problems, you may have options.

In fact, Financial institutions specialize in lending opportunities for customers with less-than-perfect credit. We offer home loans, refinancing opportunities and options for bill consolidation.

Before exploring those personal credit management options, let’s first look at some credit basics.

What Your Personal Credit Score Means
Your credit score is a computer-generated numerical value that lenders use with other information to gauge the likelihood of being paid back when they extend credit, i.e. free credit risk assessment. Generally the higher your credit score, the more likely you are to obtain the amount of credit you desire at favorable rates. One type of credit score is a FICO® score, a numerical value ranging from 300 to 850.

Lenders have different standards and underwriting guidelines that determine the types of loans they offer and at what rates. However, the lowest rates are usually given to customers whose FICO scores fall in the low-to mid-700s and above.

What Determines Your Credit Status
Perfect, near-perfect or less-than-perfect credit scores are determined mathematically through the reported credit data.

Any negative ("less than perfect credit") reports, such as late or missed payments, can lower your credit score.

Credit scores in the mid-600s or below are typically considered less-than-perfect credit, and loans or credit offers for such scores typically come with higher interest rates to offset the credit risk.

However, even if your FICO score falls within this range, there may be alternate products developed for different credit levels. For instance, financial institutions specialize in offering credit options, like home refinancing and bill consolidation loans, to customers with less-than-perfect credit.

What Goes Into Your Personal Credit Score
Five pieces of credit-related information typically make up your personal credit score.

Payment History
Have you paid your revolving credit accounts on time, missed payments or paid late?

Amounts Owed
How much credit do you owe in comparison to your available credit?

Length of Personal Credit History
How long has it been since you’ve obtained credit? What is the age of your oldest account, newest account and average age of all your credit accounts (installment loans and revolving credit)?

New Credit
Are you applying for new credit? How many lenders have checked your credit? In what timeframe?

Types of Credit In Use
What is your experience with different types of credit-revolving accounts (credit card) and installment loans (i.e. home loan)?

Five Credit Score Facts
Accurate negative information can remain on your personal credit report for seven years (10 years for bankruptcy information).

Paying down installment loans is a good indication of being able to manage and repay credit obligations.

In general, the longer you responsibly manage your credit and make payments, the better your credit score.

Inquiries remain on your credit report for two years; however, credit scores may only consider inquiries for the last 12 months.

Managing both credit cards and installment loans well may lead to a higher credit score.

10 Helpful Hints

1. Improving a credit score takes time. Borrowers with a pattern of reliable credit management are more likely to repay their loans on time.
2. Consistently pay your bills on time.
3. Review your personal credit report. Make sure all information belongs to you and is correct. If you find mistakes, you may want to check your report from all three national credit reporting agencies - Experian, TransUnion and Equifax.
4. Pay off revolving debt instead of moving it to other revolving accounts. The behavior of simply moving debt around could be associated with a reduced probability that you will repay your credit accounts on time.
5. If you don’t have a long credit history, opening too many new credit accounts too quickly can lower your average account age, lowering your credit score.
6. Complete rate shopping for an auto or home loan within 14 days. Credit inquiries made in a short time period will usually be considered as one inquiry for one loan instead of many inquiries for many new credit accounts…which can hurt your credit score.
7. Do not close old accounts to raise your credit score. Closing old accounts does not remove any late payments from your credit report.  Long-established accounts show a longer history of managing credit, which can positively affect your credit score. Unused available credit does not lower your credit score.
8. Check your FICO score six to 12 months before applying for a big loan like a home equity loan, auto loan or home loan so there’s time to correct any errors if necessary.
9. Checking your credit report and FICO score will not damage your credit, as long as you order it directly from the credit reporting agencies or an organization authorized to provide consumer credit reports. Keep in mind, the FICO score you obtain when you request your credit report may not be the same score used by lenders to underwrite your loan.
10. Everyone is entitled to one free credit report from each of the three credit reporting agencies once a year. Contact Equifax, Experian and TransUnion for yours.