OnPath Credit Union

How to Build a Strong Credit History


There are a lot of great things about financing, from reward points for credit card purchases to being able to buy a home, pay for renovations or get a reliable vehicle without requiring liquid cash on hand. The primary challenge for many people seeking loans or financing has to do with their credit score – or lack thereof. Poor credit can impact nearly every aspect of your life, from your ability to rent a good apartment or buy a car, to your rates on student loans and credit cards.

Steps to Building a Strong Credit History

Start Early and Start Small: A great place to begin is by opening a credit card. It may seem intimidating if you’ve never had one before, but it's a pivotal step. OnPath Federal Credit Union offers credit card options tailored for beginners. By making small purchases and paying them off in full every month, you demonstrate reliability to future lenders.

Timely Payments: The importance of on-time payments cannot be stressed enough. Regularly making full payments on credit cards, auto loans and other bills contributes positively to your credit history. Setting up automatic payments or reminders can ensure you never miss a deadline.

Diversify Your Credit: Having a mix of credit types boosts your credit score. This is where considering an auto loan can be beneficial. Not only do you get that car you've been eyeing, but making on-time payments on a second loan type can also enhance your credit mix, proving to lenders your ability to manage different kinds of credit.

Keep Credit Card Balances Low: High outstanding debt can negatively affect a credit score. Aim to use a small percentage of your available credit. For instance, if you have a credit limit of $10,000, try to keep the owed amount below $3,000.

Don't Open Too Many Accounts Too Quickly: New accounts lower your average account age, making you appear like a riskier borrower to lenders. Do your research and be strategic about opening new accounts.

Consider Debt Consolidation: If you find yourself overwhelmed by multiple debts, OnPath Federal Credit Union offers debt consolidation loans. By consolidating your debt, you manage one monthly payment, often with a lower interest rate. This not only simplifies your finances but can also play a role in credit repair and improvement.

Understanding and Checking Credit Reports

Every year, you're entitled to a free credit report from each of the three primary credit bureaus. Regularly checking your credit report ensures accuracy in your records and allows you to spot and rectify any errors that could hurt your credit score.

Maintaining Your Credit History

Building a strong credit history is a journey, not a destination. Once you've established good practices:

  • Continue Monitoring Your Credit: Regularly review your credit report.
  • Stay Below Your Credit Limit: Aim to use 30 percent or less of your available credit.
  • Seek Professional Advice: OnPath Federal Credit Union's financial advisors can provide personalized advice tailored to your financial landscape.

Repair Your Credit

People with low credit scores may need to adopt a more proactive approach to improving their perceived credit worthiness. Although many of the same best practices still apply, simply following the rules might not be enough.

There are a handful of things you can do to get your score trending upwards. The most obvious one is paying off debt – but that’s usually more easily said than done.

Debt consolidation is a particularly useful tool that can be leveraged by people in debt. It may allow you to regain control of your financial situation and make your monthly payments far more reasonable and manageable.

In essence, debt consolidation means paying off all your debts with a single loan. It’s far easier and less stressful to pay off one loan instead of a variety of credit cards, financing, auto loans or other debts. Of course, this only really works if your new loan has a lower interest rate than some of your other high-interest debts you’re replacing.

Since payment history accounts for a significant portion of one's credit score, consistent on-time payments post-consolidation can positively influence your credit score going forward.

Consolidating may also lower your credit utilization ratio, which is the proportion of available credit in use. Credit utilization plays a crucial role in credit scoring, and reducing this ratio can lead to an improved score.

If the consolidation results in paying off revolving debts, such as credit card balances, it can have an even more significant positive effect.

Do your best to refrain from racking up new debt after consolidation, as this can counteract the benefits and further harm your credit.

Build Your Credit with OnPath Federal Credit Union

Building a strong credit history requires diligence, patience and consistent effort. With the right tools and mindset, and with OnPath Federal Credit Union's diverse financial products, you're well on your way to achieving financial health. Call us at 800.749.6193 to learn about debt consolidation and the benefits of OnPath FCU membership.