Building Your Credit Score

IF YOU WANT TO IMPROVE YOUR FINANCIAL FUTURE START BY IMPROVING YOUR CREDIT SCORE

This information is intended to give members a basic starting point for understanding the steps they can take to build, improve, and maintain a stronger credit score over time.

Building a strong credit history takes time and consistent effort. Improving your credit score is a long-term process that requires steady, responsible financial habits. Even after your score improves, it is important to keep paying bills on time, managing debt carefully, and monitoring your credit regularly. Building your credit history should not be ignored until you are ready to apply for a loan; it should be maintained as part of your overall financial health.

What is a Credit Score?
A credit score helps lenders understand how much risk may be involved in lending money to you. It predicts how likely you are to repay a loan or other credit obligation on time. Your score is based on the information in your credit report, including your history of making payments and managing debt over time. The more positive credit history your report shows, the more confidence lenders may have in your ability to repay what you borrow.

How is your Credit Score Used?
Lenders use credit scores to help decide whether you qualify for credit, how much credit may be approved, what interest rate you may pay, and what repayment terms may apply. Credit scores may also be considered in other situations, such as tenant screening, insurance offers, and approval for services such as cable TV, internet, and cell phone accounts.

What Is a Good Credit Score?
Generally, a good credit score is considered 700 or higher. Credit scores fall into five categories (FICO scoring):

300–579 (Poor) – About 16% of the people fall into this category
580–669 (Fair) – About 17% of people fall into this category
670–739 (Good) – About 21% of people fall into this bracket
740–799 (Very Good) – About 25% of people fall into this group
800–850 (Excellent) – About 21% of people fall into this bracket

Steps on the journey toward better credit:

1. Obtain Your Credit Report and Resolve Any Discrepancies
Look for any discrepancies and file a dispute for any issues so your credit report is accurate.

2. Analyze Credit Report for Areas of Improvement

Payment history: 35% of overall FICO score. The most important factor and weighted the heaviest in calculating your credit score.
Amounts owed: 30% of overall FICO score. Keep credit utilization of no more than 10% not to have an adverse impact on your credit score.
Length of credit history: 15% of overall FICO credit score. Age of oldest account, age of newest account, average age of accounts.
Credit mix: 10% of overall FICO score. Looks at the types of credit accounts such as revolving, installment, credit cards, and secured and unsecured debt including mortgage loans.
New credit: 10% of FICO score. Considers whether applied for new credit in a short time frame, indicating may be overextending yourself.

3. Adopt Good Credit Habits Even If You Are Not Planning to Apply For a Loan

Pay your bills on time, especially accounts reported to the credit bureaus. Keep your credit utilization low by using only a small portion of the total credit available to you, preferably below 25%.
Adopt a 50/15/5 monthly budget by limiting essential expenses to about 50% of your take-home pay, directing 15% toward retirement savings, and setting aside 5% for emergencies. Building an emergency fund with three to six months of living expenses can help reduce the need to borrow or rely on credit cards when unexpected costs arise.
Adopt a healthy financial lifestyle and avoid becoming over-stretched by debt. Make sure monthly debt payments do not exceed 36% of monthly income.