First Choice Community Credit Union
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Increase Your Credit IQ  

A silhouette of a magician holding a wand over an upside down top hat To many consumers, credit bureaus use nothing short of magic to turn payment histories into credit scores, those baffling numbers that financial institutions use to determine overall creditworthiness and interest rates on loans.

However, rational explanations do underlie your credit score. The tips below are not all-inclusive and will not completely demystify your credit score, but they will help you raise your credit IQ.

  • Repay on time. Your repayment history makes up approximately 35% of your overall credit score, and delinquent payments are generally the most common demerits that loan officers encounter on credit reports.
  • Stay well below minimum balances on revolving debt. Your balance-to-credit-limit ratio accounts for approximately 30% of your credit score. Experts suggest using 50% or less of your available credit on accounts.
  • Sustain a repayment history by keeping paid-off accounts open unless replaced by new accounts. Length of credit history accounts for 15% of your credit score.
  • Keep credit cards to a minimum and take out a variety of secured and unsecured loans. Excessive unsecured debt in the form of bank or retail credit cards lowers your score as does taking out new credit cards.  Instead of increasing your number of credit cards and/or the oustanding balance on existing cards, diversify your debt by taking out either a secured or unsecured installment loan.  Together, the amount of unsecured debt and diversification of debt constitute the remaining 20% of your credit score.

In addition, try keeping inquiries to a minimum as multiple inquiries at different lending institutions over a short time—say, a few days or a couple of weeks—will lower your credit score and raise red flags with loan officers.

While you can not always avoid credit-related pitfalls, by proactively cultivating good credit you will reap the benefit of saving both time and money. Your future financial goals will be easier to achieve and will carry lower costs. For example, depending on where your credit score falls, a mere one-point increase in your score could decrease the interest rate on a car loan by as much as three percentage points. On a $10,000 loan financed over 60 months that equals a 20% savings in total finance charges. And your monthly payment would decrease by over 6%. For a signature loan, a one-point swing downward in your score could mean the difference between borrowing the money you need from First Choice or from your kids’ college fund.

First Choice Community Credit Union can help you raise your credit IQ. To learn more about membership and the many financial services and products that First Choice Community Credit Union offers, call loan services. To obtain a free copy of your credit report visit