Benefits of Strong Credit

Credit encompasses many elements, but at the core it is an indicator of overall financial health. There are many benefits to having good credit. First and foremost, credit helps in obtaining lower interest rates and better terms for loans. Those better interest rates mean more money in your pocket. Credit also helps with improving the chances of loan approval. A strong credit history and score will save you money in finance charges and loan fees. It can even save you money on insurance premiums, such as homeowner’s insurance.

Credit is important for so many aspects of your financial life. If your car breaks down and you need to purchase a new one, credit makes it possible to get an auto loan you can afford. Given that owning a home is a major financial milestone, setting yourself up for success when getting a mortgage is essential—and can save you money in the long run.

Credit Scores

Credit can be represented as a score between 300 and 850, with 300 the lowest and 850 the highest. This number symbolizes a complex system of financial factors based on your personal financial history. The better your credit score, the easier it is to reach milestones like homeownership, since better credit scores equal better loan rates and terms.

What does a “good” credit score look like? Experian breaks down credit scores into the following categories:

• 670–739: Good
• 740–800: Very good
• 800–850: Excellent

Building and Improving Credit

So, now that we know what credit is, let’s explore how to actually improve it.

Credit is primarily built through the responsible management of credit sources, like credit cards and loans. This shows that you pay off your debts and handle your money well. Here are several simple, but powerful, steps you can take to improve your credit:

1. Keep available credit utilization low

Don’t use up your entire credit limit. For example, if you have a limit of $5,000 on your credit card, you should only use $1,500. The rule of thumb is to use 30% or less of your credit limit.

2. Make payments on time

Prioritize making any and all payments before they’re due.

3. Have a diverse mix of credit sources

Responsible management of different types of credit is beneficial to your credit history and score. Here are some key types: installment loans (like vehicle or personal loans), revolving credit (credit cards) and secured loans (mortgage loans).

4. Monitor your credit

Check your credit report regularly. You can get a free copy at annualcreditreport.com. Ensure that all personal information is accurate, like the spelling of your name, date of birth, Social Security number and home address. Check all open balances and search for any collections that could negatively impact your score.

5. Don’t apply for too much credit in a short period

Make sure to space out credit applications.

Let’s Debunk Some Myths

Myths and misconceptions surrounding credit can harm your finances. Let’s bust some common credit myths:

• “If I pay off my balance today, my credit score will be higher tomorrow!” | Credit scores don’t change immediately, so paying off your balance today doesn’t mean a new score overnight. It may take two to five months to see a noticeable change in your credit score due to reporting and processing lags.
• “If I use more of my credit limit, it will help my score.” | Actually, keeping a low utilization rate—30% or under—is best for your credit.
• “Late payments don’t really matter.” | Even one late payment can drop your credit score dramatically. This can stay on your credit report for a long time; even for up to seven years.
• “Credit score is all that matters.” | While your credit score is very important, your credit history is also key to your overall credit health. A longer history of responsible credit management is beneficial.

How We Can Help

As your trusted financial partner, we want you to succeed. Our helpful staff remain available to address your concerns and provide personalized service to help you reach your financial goals. You can always stop by a branch or call us at 630.844.4950 for more help on building your credit. We also recommend:

· Our Financial Education course, a free resource that features modules on topics like credit.

· Booking an appointment with the Aurora Financial Empowerment Center (FEC). The FEC offers free, personalized financial counseling to equip you with the resources to succeed.