Credit influences many of the financial steps we take in life, but what is it? Lesley explains credit in this short video:

Think of Your Credit Score as Your Financial Report Card

Credit is your ability to borrow money or access goods and services under an agreement that you’ll pay back the entire amount in a set timeframe, typically with interest. ​Lenders grant credit based on their confidence and trust that you’ll pay back what you borrowed. It’s a three-digit number between 300 and 850 that represents your credit worthiness, or the likelihood you’ll pay what you borrowed on-time, based on your credit history. It’s generated from information lenders provide to the three credit bureaus: TransUnion, Equifax, and Experian. 700 and above is generally considered a good score, but it can vary based on your lending needs. You can always work to build or improve your credit no matter where you start.

Do You Know Where You Stand?

You’re entitled to a free report every year from each of the three credit bureaus. You can also check your credit score in the GSB Mobile App as often as you’d like without impacting your score. It will give you personalized tips to help track and improve your score.

Establishing Credit

Oftentimes people apply for their first loan and realize it’s not that they have bad credit, they don’t have credit at all. There are two types of accounts you can open to establish credit history – revolving and installment credit. With revolving credit, you can use the line repeatedly – up to a certain limit – for as long as the account is open. For example, you spend using a credit card, pay it off, and the balance becomes available to you again. With installment credit, you’re given a lump sum with specific payments and a payoff date, like a student or car loan. GSB’s Credit Builder Loan allows you to borrow against a CD or savings account. You’ll still be earning on your savings while accessing low interest rates on the money you borrow. With on-time, monthly payments, your score will build with a well-rounded variety of credit.

Understanding Your Debt-to-Credit Ratio

Your score is also dependent on your debt-to-credit ratio, meaning how much credit you have available in relation to how much you’re using. It’s best that your outstanding balances stay below 30% of your available credit. For example, if you have a $1,000 limit on your credit card, you want to make regular payments to ensure the balance doesn’t sit above $300. Why? Because the amount you owe can negatively impact your score.

Maintaining Good Credit

To build and maintain good credit, always make payments on-time. Know your due dates and set up your bill payments however works best for you. Whatever makes it easy, so you don’t miss a payment. When you do – and it happens – make the payment quickly. Credit will build your score but used irresponsibly it will damage your score much faster.

Have questions or need help building or improving your credit? Our Financial Wellness Coaches, Erika Taylor and Lesley Warn, are available to chat about all things money management. Get in touch with them.