Each bureau uses its own credit score model, which is why the ranges for each scoring model vary.
Reasons to improve your credit score
When you apply for a loan to make a significant purchase — such as a new car, mortgage, or apartment — lenders use your credit score to determine the financial terms they will offer you. A healthy credit score can mean better approval rates. Individuals with higher credit scores are typically able to snag lower interest rates and higher borrowing limits when qualifying for financial products. This works to their advantage when shopping for the best financial products, including mortgage terms, personal loans, credit cards, and even checking accounts available to them.
Your credit may also be checked when you apply for a job if you consent to it, though laws allowing or prohibiting this differ depending on what state or city you live in. Employers can view your credit history, but they cannot see your score.1
How do I start building a credit history that shows financial health?
Before you take action, understand what the credit bureaus are looking for. Factors that are especially important in determining your credit score are paying your bills and paying them on time (payment history and outstanding debt), keeping credit cards open even when you’ve paid them off (length of credit history), and not opening too many cards or applying for too many loans at once (recent credit activity).
With those factors in mind, there are steps you can take to build your financial health. These include:
- Use a secured card. A secured card is a type of card that you pay upfront, allowing you to spend only as much as you put on the card at any one time. When used like a normal credit card, your on-time payments help build up your payment history, especially helpful if you are just starting out.
- Consider a department store card. Some retail cards may have lower requirements for eligibility, compared to a major payment network like American Express or Visa, making them a good option for establishing credit. Choose a card that reports activity to one of the three major credit bureaus, though, so you can build your length of credit and payment history.
- Open a Money Smart CD Loan. This is a credit-building tool offered by Wintrust Community Banks that can also help reestablish or repair credit history. With it, you can take out a loan for as little as $500, place the funds in a certificate of deposit account (CD), and make fixed monthly payments for a set period of time until the loan is paid off. It’s a forced savings plan that allows your savings to remain in place while you build credit. The interest rate on the loan is lower than most credit cards, no credit history is required, and when the loan is paid, you keep the funds in the CD plus the interest it earned.
- Pay off your debts. Do your best to pay down outstanding debt as quickly as possible, including credit cards, student loans, car loans, or any other personal loans you may have taken out.
Remember that establishing healthy financial habits like consistently paying your bills on or before the due dates goes a long way in improving your credit report. So if you open a credit card, have a plan for payment.
How long will it take me to establish or improve my credit?
There’s no set answer to this question because everyone’s current credit history is different. In general, though, if you’re trying to build a good credit score from scratch, give yourself about six months of consistent, on-time payments on loans or credit cards to improve the score.
Maintaining healthy credit is a lifelong process, so keeping tabs on your credit score is important. You are entitled to a free credit report from each of the three credit bureaus on an annual basis, and checking your credit score frequently may help you stay on track with your goals and spot inaccuracies or issues. With a little time and dedication, you can do good things for your credit.
We have the financial tools to help you start or continue building your credit. See what product will work for you or contact us today for assistance.
