Having good credit is essential. It may also feel overwhelming if you don’t have any or you do not realize the importance. Many young adults are unaware of the impact of having no credit until they apply for their first Auto Loan. It’s at this moment that they realize they should’ve started building credit earlier because they either will end up paying a high-interest rate or, worst-case scenario, won’t qualify for the loan at all. To help, we created this blog with things you need to know about credit and how to maintain it.

When you hear the term credit, do you automatically associate it with a Credit Card? A Credit Card is an excellent example of a type of credit—it is a revolving line of credit that you use to buy things. Credit Cards follow the “buy now, pay later” model, where all the purchases you make during your Credit Card cycle (usually a 28-31-day period) are added together into a single bill. You then make a payment­—either the full amount or at least the minimum stated—by the due date. A Credit Card is different than a Debit Card, where each purchase would be taken from your Checking Account automatically, rather than you having to pay it back.

However, credit is more than a piece of plastic you use to make purchases. Think of it as a financial report card that lenders use to determine how responsible you are in paying back loans. Your credit will determine how much you qualify for not just for Credit Cards but also for installment loans such as Auto Loans, RV Loans, and Home Loans. Credit Cards are revolving lines of credit because you continually use the funds and make payments as needed. Installment loans, however, are loans that you make payments to for a set timeframe until it is paid off—you then take ownership from the lender for the car, home, RV, etc. To be eligible for any of these types of loans, you need to have credit established.

The trick to establishing credit (or rebuilding it) is to start small. Know your limits. Applying for Yolo Federal’s Share Secured Visa® Credit Card is a great place to start. It works just like a regular Credit Card—except you’ll need to freeze funds in your account to be used as a credit line. A secured Credit Card is a smart first step to (re)building credit history. To learn more about Yolo Federal’s Share Secured Visa Credit Card, visit our website.

So, you have credit already. How do you increase or maintain good credit?

• Make your payments on time! On-time payments are necessary because they make up a large portion of your credit score. If you have frequent missed or late payments, your credit will begin to decline.
• Don’t max out your Credit Cards. Utilizing your entire credit line is concerning to lenders because it makes it seem as though you aren’t managing your credit responsibly—or you’re living beyond your means.
• Mix it up. Having multiple types of credit (lines of credit vs. installment loans) looks good because it shows you can handle various credit loans at a time.
• Monitor credit inquiries. Limit the number of credit inquiries, especially in a short period of time. Every time you apply for a loan, your credit will be run (called a hit). Too many hits on your credit could negatively impact your credit score.
• Time matters. Keep older credit lines open. Longer histories are more appealing because they show your responsibility over time.

Checking your credit report annually and reporting errors could help improve your credit score. You can request one free copy of your credit history from the three major credit bureaus (Experian, Equifax, and TransUnion) yearly at annualcreditreport.com. Review these for errors or inaccuracies. If anything looks incorrect, report it immediately. Additionally, you’ll want to monitor for signs of identity theft (unknown lines of credit, multiple inquiries you did not do, etc.). If you suspect you are a victim of identity theft, contact the credit bureaus immediately through their websites linked above. Identity theft is not a quick fix, but detecting it early could lessen the time needed to repair your credit.

Tackling credit on your own can feel scary. Luckily, you don’t have to do it by yourself. Our team of local experts are here to help you analyze your credit and provide guidance on how to (re)build it to get you on the path toward financial freedom. Get started today and schedule an appointment with a Yolo Federal representative.