Using Credit Responsibly

Borrowing money is a reality for most consumers. Whether it’s to buy a new car, make home improvements or to purchase a home, it’s important to understand how to build your credit so that it works for you, not against you. When the time comes to borrow money, your credit history helps determine the amount of credit and the rate you qualify for. That’s why it’s important to utilize your credit responsibly.

What’s your FICO score?

When you apply for a loan, your FICO score, or credit score, determines the interest rate you’ll receive. This score is calculated by looking at several different factors in your credit report. Most notably, your payment or credit history, number of open accounts and your balance-to-credit-limit ratio (this is the combined balances owed vs. combined credit limits). Here are some of the critical ways to build and improve your credit score.

  • Don’t close all of your credit accounts. Some people think they need to close all of their credit lines to increase or repair their credit score. Always keep your oldest credit line or card open. If you close it, you’ll be erasing a portion of your credit history. Find the cards with the lowest limits and that you use the least and eliminate them first. It’s important that you have two open lines of credit at all times.
  • Use your credit cards periodically for small purchases. Some credit card companies will close cards with no activity. Make small purchases every so often to keep them open and pay them off.
  • If at all possible, don’t carry a balance. Your ability to pay off outstanding balances will go a long way to building your credit score and history. If you need to leave a portion of your balance, make sure you’re making more than the minimum payment.
  • Use rewards cards. Most credit cards offer airline miles, hotel points or travel rewards. Take advantage of being rewarded for the purchases you make every day. Building credit and earning rewards is a win-win. Pacific Service CU offers a Visa Rewards card where you can earn points for airline tickets, hotels and more.
  • Request a higher credit limit. If you’ve been making your payments on time, you can ask your card issuer for a credit limit increase. This will improve your balance-to-credit-limit ratio.

There’s a lot that goes into building and maintaining a positive credit history. By following these simple steps, you’ll be on your way to a higher credit score and low rates.

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