When it comes to managing your credit and understanding how it impacts your financial future, there’s no shortage of questions. To help guide us through the process, we’re getting insights from Michelle Dwyer, the President and CEO of Franklin First Financial Credit Union. As a financial services expert, Michelle and her team have years of experience helping individuals improve their financial health. Today, she’ll be answering key questions about why credit scores matter and what steps you can take to get back in creditors’ good graces.
Q: Why is a good credit score so important?
A: Your credit score is a reflection of your financial risk to creditors. It affects many aspects of your life, from renting an apartment to securing a car loan or mortgage. A strong credit score shows lenders and landlords that you’re a lower-risk borrower, making them more likely to approve you for loans or leases. On the flip side, poor credit can lead to higher interest rates, loan denials, and even higher rent costs.
Q: What can I do to improve my credit score if it’s taken a hit?
A: Rebuilding your credit may take time, but here are three simple steps to improving your credit score:
- Pay bills on time
Missing payments can quickly hurt your credit score. When you miss a payment, interest fees accumulate, and the debt grows larger, affecting your credit score. Even worse, missed payments can stay on your credit report for up to seven years. Paying bills on time is one of the easiest ways to show lenders that you’re able to meet your debt obligations and are working toward rebuilding your credit. - Keep credit card usage low
Your credit utilization ratio—how much credit you use compared to your available credit—is a big factor in your credit score. Experts recommend using no more than 30% of your available credit. So, if you have a $1,000 credit limit, try to keep your balance under $300. The lower your credit utilization, the better it is for your credit score. For example, people with excellent credit typically use only 6.5% of their credit, while those with poor credit may use over 80%. - Consider a secured credit card
If your credit is in rough shape, a secured credit card can be a great way to rebuild it. With a secured card, you make a deposit that acts as your credit limit. By using this card responsibly (paying it off each month), your payment history is reported to the credit bureaus, which can help improve your score. This is an excellent option for those with no credit or those who’ve made past financial mistakes.
Q: How can these steps help me in the long run?
A: By paying on time, keeping your credit usage low, and using tools like secured credit cards, you can slowly rebuild your credit and show lenders you’re capable of managing debt. This will help you get better interest rates and access to loans in the future, which can save you money over time.
Getting your credit back on track might not happen overnight, but with patience and discipline, you’ll see improvements that can help your financial future!
