Credit Education

We all have financial goals and dreams that we want to achieve. If you want to make your financial goals a reality, knowing how to establish and maintain a strong credit history will go a long way.

The value of establishing a credit score;

Credit scores are based on how you've managed debt in the past, and lenders use your score to establish the level of risk you pose as a borrower. If you have a long history of making on-time payments and managing debt responsibly, you likely have a good credit score and may have a better chance of getting approved for credit with favorable terms. If you don't have much experience with credit or have negative information such as late payments in your credit history, you may have difficulty being approved for a new account. And if you do get approved, you'll likely get less favorable terms.

A favorable credit opens financial doors

Having good credit can help you access financial opportunities.

Major purchases: If you cannot make a purchase with cash, the vast majority of large purchases, such as houses and cars, require some type of credit.

Loan options: Businesses use it to decide whether to offer you credit or not. They also use it to establish the terms of a loan and how much it will cost in the end.

Buying a home: A good credit history is a key element that determines, first, if you can obtain a mortgage loan to buy a house, and then, the interest rate that you will pay over the life of the mortgage.

Bad credit creates financial barriers

When you don't have “good credit”, you can face financial hurdles that are difficult to overcome.

• They may deny you a loan, or they may offer you loans on higher terms.
• They may ask for large deposits, such as for rental housing, utilities, or a cell phone.
• When making large purchases with bad credit, you could have a hard time not being able to pay such high monthly payments.

Ways to establish a credit score;

Building a good credit score can take time, but the benefits of doing so are numerous. The good news is that if you make your Alvva payments on time for an extended period of time you may be able to build a credit score. Even if you don't expect to apply for credit anytime soon, it's important to start working on it now so you can build a good score for when you need it.

Credit builder loans

Financial institutions, typically credit unions, deposit a small “loan” (often $300-$1000) into a locked savings account and then you pay the institution back with small-dollar payments over 6 to 24 months. These payments are reported to the credit reporting companies. Once you come to the end of the loan term, you receive the accumulated money back in total.

Secured credit cards

Apply for this card as you would a traditional credit card. Once approved you deposit an amount of money –which can range from $50 to $300– into a separate account. The bank holds onto this deposit and extends a credit line matching the deposit amount. Generally, you can build credit with a secured card, but be sure to ask your card issuer about reporting to the credit reporting companies. Many of these cards include a graduation component, so you are able to move from a secured card to a traditional credit card seamlessly after establishing a pattern of consistent payments.

Retail store cards

Many department stores or retail chains offer credit cards. These cards tend to be easier to obtain and typically offer lower credit lines. This combination makes them an option when you are looking to build up a thin or nonexistent credit record.

Be aware that not all financial products help you establish a credit score. Typically, companies offering these products do not report to the nation's big three credit reporting companies.

• Debit cards
• Prepaid Cards
• Payday Loans
• “Buy Here, Pay Here” Auto Loans

Ways to improve a credit score;

• Pay your bills on time, every time
• Check your credit report and make sure that it has no mistakes
• Reduce the amount of debt you owe
• Only apply for the credit you need
• Don’t use more than 30% of your total credit limit
• If you have a credit card, pay your entire balance every month
• Pay your missed payments and stay current

Factors that impact a credit score;

According to Fair Isaac and Company, the factors considered in determining FICO scores are:

• Payment history (about 35% of the score): Making payments consistently on time indicates that you are responsible.
• Amounts owed on credit accounts (about 30% of the score) Fair Isaac is looking to see whether you manage your credit responsibly. A large number of accounts with balances may indicate that you are overextended.
• Length of credit history (about 15% of the score) A longer credit history generally increases the score.
• New credit (about 10% of the score) Fair Isaac likes to see an established credit history, without too many new accounts. Opening several accounts in a short period can indicate greater risk.
• Types of credit (about 10% of the score) Fair Isaac is looking for a mix of different types of credit. However, this factor is usually not important if there is other sufficient information upon which to base your score.

Ways to check one’s credit score; Ways to obtain a free copy of one’s credit report; and, Ways to dispute an error in one’s credit report.

You can receive free copies of your credit reports every 12 months from AnnualCreditReport.com. This is the only source authorized under federal law that provides free credit reports for all three leading national reporting companies credit: Equifax, Experian, and TransUnion. Other places that promise free credit reports could require you to subscribe to “free trials” that end up charging you or trying to sell you other products or services that you may not need. You can also get a free copy of your credit report via telephone by calling (877) 322-8228.

Check your report for any inaccuracies and if you identify an error on your credit report, you should start by disputing that information with the credit reporting company (Experian, Equifax, and/or Transunion). You should explain in writing what you think is wrong, why, and include copies of documents that support your dispute. If you mail a dispute, your dispute letter should include:

• Your Contact information including complete name, address, and telephone number
• The Report confirmation number, if available
• Clearly identify each mistake, such as an account number for any account you may be disputing
• Explain why you are disputing the information
• Request that the information be removed or corrected
• Enclose a copy of the portion of your credit report that contains the disputed items and circle or highlight the disputed items. You should include copies (not originals) of documents that support your position.