How Is Credit Established?
There are many different ways to build up a good credit history
and a few ways to hurt it. Even if you have never made a major
purchase, there are steps you can take to begin building your
- Open a checking/savings account, or acquire a debit card. These
alone will not help your credit, but they will indicate that you
have money and you can manage it. Our VISA® Debit Card offers a
monthly cash-back rebate with qualifying transactions.
- Apply for a major credit card. Use it responsibly and pay those
credit card bills back on time. We offer VISA® Credit Cards
designed to suit your individual needs.
- Apply for a small loan or line of credit.
- If you share housing and utilities, make sure a few of those
bills are in your name and pay it on time.
- If you have a student loan, be sure to make regular, on-time
- Co-sign with a person who has established good credit. Once the
co-signing has occurred, simply make your payments on time.
To avoid hurting your credit score:
- Avoid missing payments on bills or loans. Even late payments
count against you. If you can't make a full payment, make some kind
- Don't let other people use your credit card accounts. You are
responsible for your account, no matter who uses the card.
- Don't overdraw your accounts. You will be charged fees, and you
can damage your credit record.
Favorable credit history doesn't happen overnight, but by taking
care of your credit, over time, you will establish good credit
history. Remember, you can get a free copy of your credit report
every year. Here's how to order one:
What Affects My Credit (FICO) Score?
Your credit score (called your FICO score in the United States)
is a number that represents your credit worthiness and indicates
the likelihood that you will pay back your debts. Banks and credit
card companies use this number to evaluate the potential risk you
pose, should they lend money to you.
FICO scores range between 300 and 850. The majority of scores
fall between 650 and 799, and according to FICO, the median score
is roughly 720.
It is a good idea to understand what affects your credit
- 35%: Payment History - Paying on time can mean
the difference between an average and exceptional FICO score. Late
payments on bills, such as a mortgage, credit card or automobile
loans, can cause a FICO score to drop. However, if you have a slip
up and forget to pay a bill from time to time, it won't affect your
credit score dramatically, as long as you have already shown a
history of paying on time.
- 30%: Amount Borrowed Compared to Available
Credit - The credit utilization ratio is the
current revolving debt (such as
credit card balances) compared to the total available credit or
credit limit. FICO scores can be improved by paying off debt, which
lowers the credit utilization ratio. Alternatively, if you
have your credit limit increased, this will also drive down the
- Opposite of common belief, when you close existing revolving
accounts, this will actually adversely affect your credit
utilization ratio, not improve it. Therefore, it is important to
keep those accounts open with a little activity that is paid off
- 15%: Length of Credit History - As credit
history ages, it can have a positive impact on your FICO score.
People with scores over 800 typically have at least three credit
cards open for over seven years.
- 10%: Types of Debt - Your FICO score is
positively influenced by showing a history of managing different
types of credit successfully (installment vs. revolving debt).
Installment debt, such as an auto loan, is looked upon more
favorably than revolving debt, such as credit cards.
- 10%: Credit Searches - Credit inquiries, which
occur when consumers are seeking new credit, can hurt scores,
especially if they happen in a short span of time. Exceptions to
this include: all mortgage inquires within 30 days of each other
will be lumped together as one inquiry; for autos, the timeframe is
Remember, you can get a free copy of your credit report every
year or any time you are denied credit. Here's how to order
When A Credit Card Is Paid Off, Is It Better To
Leave It Open Or Cancel The Card?
Thirty percent of your FICO score is made up of the amount you
have borrowed compared to the amount of available credit you have
(called the credit utilization ratio). High credit card balances
will hurt your credit score; however, FICO scores can be improved
by paying off debt, which lowers the credit utilization ratio.
Once you have that victory of paying off a credit card and
bringing the balance to zero, the first thing many people do is
immediately cancel the card. But this is the wrong thing to do!
Instead, keep the account open and have a small amount of activity
on it that is paid off each month.
Here's why: One factor that determines your credit score is the
length of credit history, which makes up about 15% of your total
score. People with credit scores over 800 typically hold at least
three credit cards (with low balances), which they've had open for
seven years or more.
Rather than closing these accounts, it is best to work toward
paying them off, and then keep the accounts open with a small
amount of activity being charged (and paid off) each month. This
can be as simple as setting up a utility or cell phone bill to be
automatically charged each month by that card.
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