Did you know…

• The average FICO score in America is 695 and the average Vantage score stands at 673. [source]
• Less than 1% of the population has a perfect credit score of 850. [source]
• Only 41% of Americans understand that a credit score measures your risk of not paying a loan, according to a joint survey from the Consumer Federation of America and VantageScore.

Credit is important for pretty much all facets of adult life. Credit can be impacted by a number of different things. If you’ve been turned down for credit or you’re looking to buy a house, credit is pretty important. But if you are just starting out, how do you establish credit? And once you do, what are some things you can do to help build that credit score? Here are a few ideas.

Become an authorized signer on someone’s credit card
A young adult that has not yet established a credit rating can be added to the credit card of a family member or spouse, and the activity on the credit card can help establish a credit rating, without the liability of a loan. Keep in mind that you want the person to handle their own credit in a responsible manner.

Apply for a secured credit card or loan
If you have monies in a savings account or CD at your local financial institution, you can take out a small loan secured by a portion of that money you have on deposit. Set the loan over 12-24 months, and steadily repay the loan back. The credit agencies want to see on time, consistent monthly payments to establish a good credit rating.

Get a co-signer
If you have or have not exercised either of the above methods at this point, you could look at having someone with a well-established credit rating co-sign on a loan with you. In this scenario the bank would rely on the co-signers credit rating when underwriting the loan application. In many cases, you must have steady income to show that repaying the loan is feasible.

Now that you have credit, here is how you can improve it.
 

Make all loan payments on time
The most important step to assuring a good credit score, while improving it over time, is to make all obligated loan payments in a timely fashion. Consistency over a range of time, with no late payments, is the best way to improve your overall credit score.

Keep credit card utilization low
Don’t spend over 32% of the available limit on your credit card. If you have a $2,000 limit, try to keep the balance at or below $640. Most people don’t realize that it can negatively impact your credit score should you advance more. This even counts if you only carry the balance for a few days or a few weeks. Advancing over that percentage is a risk indicator for the algorithms that the credit bureaus use.

Avoid opening too many accounts at once
Applying for multiple loans or opening more than one loan in a short period of time can negatively impact your credit score. Again, this is a financial red flag for the reporting agencies. When it comes to open lines of credit or credit cards that are opened at once, it indicates that a person “may” be in financial trouble.

Use different types of credit
Using different types of credit like personal or installment loans, in addition to maintaining a credit card or two, shows your ability to pay your bills and manage the different types of credit.

Talk with your banker. Either personal or business, your relationship with your banker should be a partnership to helping you achieve your financial goals to fuel your life goals. If credit is standing in the way, be diligent in the process and you can achieve the credit status you desire. If you have any questions about establishing credit, reach out to a banker at Falcon National Bank, we're happy to help!