Written By: Leah Chester-Davis & Carrie Barnhardt
Credit scores and credit history are among the first things any loan officer will review when considering loaning you money. The earlier you start building good credit, the more successful you will be in obtaining loans to help meet your personal and business goals. Carrie Barnhardt, loan officer in the Concord Branch of Carolina Farm Credit shares tips on five important steps.
- Make your payments on time. Credit cards, household utility bills, and loans can all contribute to better credit scores as long as you pay them on time. It’s a way to show that you are a reliable consumer or borrower and it becomes part of your credit history. The older you get and the older your accounts, paired with making payments on time, leads to better credit scores. Consider “payment due” a stepping stone to building a good credit score.
- Avoid 30+ day late payments. On occasion, if you forget to mail a payment for a few days or you get busy and it just slips your mind, make the payment immediately but don’t stress out if it’s only been a few days. However, avoid letting a payment go past 30 days. That’s when it will go on your credit history as a big negative for seven long years, affecting your credit score. “If the late payment is on a credit card, sometimes people think they can cancel that credit card and information on the late payment goes away,” says Barnhardt. “It does not work like that. I can see any late payments you have made over the past seven years, even if that credit line is closed. To improve your score, the older a late payment is the better. Once it drops off after seven years, your score will improve quickly. It’s never too late to begin making current payments to help improve your score.”
- Have a variety of loans. This may seem counterintuitive but having several types of loans like credit cards, an auto loan, a mortgage, or a student loan on your credit shows that you are responsible in managing several types of payments. If you are current on all payments, your score will rise quickly. “It’s great if you have no debt, but only if you previously established credit through car, home, credit cards or other loans. If you are 21 years old with no debt and you have never even had a small credit card to your name, no credit score can be calculated and it will be difficult to get a loan.”
- Put a freeze/fraud alert on your credit. With easier access to Social Security numbers and data breaches more and more common, one of the best ways to protect yourself is by freezing your credit. You can freeze your credit with each of the three credit bureaus: Equifax, Experian, and TransUnion. You will be given a PIN that will enable you to temporarily lift the freeze for a specific timeframe or lender. It is free and does not affect your score. You can also put a fraud alert on your report that lists a phone number for the lender to call to verify your identity and to ensure you are authorizing a transaction.
- Check your credit. The Federal Trade Commission has a secure website (annualcreditreport.com) that allows you to pull your reports once a year. In an age of identity theft, it’s important to annually review your credit report to make sure there aren’t any red flags, says Barnhardt. She cites an example of someone whose credit score was low due to a large unpaid medical bill on her credit report. It turns out the medical bill did not even belong to this person. Thanks to the credit report, she contacted the credit bureau and went through the necessary steps to have the errant information removed, which resulted in a much better credit score and the ability to secure the loan she needed.