Get Smart About Credit

Getting smart about credit is a great goal! Here are some key steps to help you understand and manage your credit effectively:

1. Understand Credit Basics

• Credit Score: Learn what it is (a number reflecting your creditworthiness) and the factors that affect it, like payment history, credit utilization, length of credit history, types of credit, and recent inquiries. FICO®, which is one credit-scoring company, says scores between 670 and 739 qualify as good. The longer you have had credit, the better it is for your credit score. Leave your oldest accounts open since they help increase your credit age and build good credit.
• Credit Report: Know how to obtain your credit report for free from the major bureaus (Equifax, Experian, and TransUnion) and what to look for.

2. Check Your Credit Reports Regularly

• Review your reports for accuracy and dispute any errors you find. You can get one free report from each bureau every year at AnnualCreditReport.com.

3. Build Good Credit Habits

• Pay Bills on Time: Late payments can significantly harm your score.
• Keep Credit Utilization Low: Aim to use less than 30% of your available credit.
• Limit New Credit Applications: Each hard inquiry can temporarily lower your score, so apply only when necessary.

4. Diversify Your Credit Mix

• Having a mix of credit types (like credit cards, loans, and mortgages) can benefit your score, but don’t take on debt you don’t need.

5. Use Credit Responsibly

• Use credit cards for regular expenses and pay them off in full each month to avoid interest and build positive credit history. Credit card issuers often report your balances to the credit bureaus at the very end of a billing cycle. This means the reported balance and how much you spend that month could be different, making your balances appear larger. This impacts your credit utilization rate. Here’s an example:
• Your credit card has a $1,000 limit. You charge $500 per month and always try to pay in full. Your credit card company reports your balance of $500 before you’ve paid it off at the end of the month. This puts you at the credit utilization of 50% and your credit score takes a hit. If you pay off your card every time the balance reaches $150. Your reported balance is only $150, which knocks your credit utilization rate to 15%.

6. Educate Yourself on Financial Products

• Research different types of credit products (credit cards, personal loans, etc.) and choose those that fit your financial goals and habits.

7. Consider Credit Counseling

• If you’re struggling with debt or credit management, consider speaking with a credit counselor for guidance.

8. Stay Informed

• Follow financial news, blogs, and resources to keep up with credit trends and tips. Understanding the broader financial landscape can help you make informed decisions.

9. Use Credit Monitoring Tools

• Many financial institutions and third-party services offer credit monitoring. This can alert you to changes in your credit report and help you stay on track.

10. Be Patient

• Building and maintaining good credit takes time. Stay consistent with good habits, and your credit score will improve over time.

The Five Cs of Credit

Lenders evaluate:

• Character: Your reliability.
• Capacity: Your ability to repay.
• Collateral: Assets backing the loan.
• Capital: Your financial reserves.
• Conditions: The loan’s terms and economic environment.

Each “C” is essential, with character and capacity often being the most critical in lending decisions.

By following these guidelines, you can effectively manage your credit and make informed financial decisions! If you have specific questions or need more details on any aspect, feel free to ask and contact Core Bank!