9 Ways to Build Better Credit

Jim Cowell, Consumer Lending Manager at Village Bank, works with all types of consumer lending and loans. He’s a member of a small team at Village Bank that do all the underwriting for all loan products. Jim has an expansive career in both banking and in the mortgage business – so he’s no stranger to the importance of having good credit.

“If you ever want to buy a car or a house, you must have good credit to support that. There are a lot of different factors that go into the underwriting process and decision-making process for different products, like loans or credit cards, but one of the most important is your credit score.” Jim further explains, “Most banks, including us at Village Bank, use the credit score a major indicator of determining who’s an appropriate customer for these products.”

Understanding that the credit score is perhaps the most important thing for securing a loan, Jim offers these ten methods to build better credit.

1. Pay on time.
   “Do not, do not, be late. That is a sure way to drive your credit score down.” This was the first thing that came to Jim’s mind when asked. Late payments are often the most significant and easiest way for one’s credit score to start slipping downward.

2. Limit your balances.
   Jim talks us through an example, “Let’s say you have four or five credit cards, each with a $1,000 balance, for example. And for all of them, you owe about $800-$900. This is essentially capping them out and that in and of itself really drives your credit score down.” Keeping your balances low, in proportion to the credit limit, is a great practice to get into to keep your credit score high.

3. Open accounts that actually report to a credit bureau.
   “Things like a ‘pay-day loan’ or other non-banking products that don’t report to a credit bureau aren’t helping you,” Jim says. If you can, always open accounts that report to a credit bureau. Pay-day loans are often marketed towards those who already have a lower credit score.  However, the rates of these loans are often very high – creating a cycle that’s difficult to get out of.

4. Stay out of foreclosure or bankruptcy.
   Jim warns, “These kinds of events stay on your report for seven to ten years. These are often a disqualifying factor.” There are many ways to help avoid foreclosures or bankruptcy like credit counseling, spending reductions, or debt consolidation.

5. Be prepared to resume paying student loans.
   “The recent student loan forgiveness that we’ve gotten is going away,” Jim explains. The last couple years, some may have gotten used to not having to pay back these loans, but Jim warns to not get too comfortable, because student loan payments are scheduled to return in 2024.

6. Set up automatic payments.
   “This method goes back to just simply paying on time. Some people don’t even know that this is an option, but it completely prevents you from missing payments.” Jim continues, “Mistakes happen, plain and simple, and we understand that at Village Bank. But in today’s crazy world, people get caught up in their own lives and can forget to pay their bills. Automatic payments are great ways to avoid these types of honest mistakes.”

7. Be aware of what you are spending.
   Jim advises, “Check your credit balances and your bank statements regularly, line by line. There is a lot of fraud out there these days. make sure they are transactions you have actually made.” Make sure to dispute anything that is not right or unrecognizable to the credit bureau.

8. Don’t close out old credit cards.
   “Age of credit line is really important,” says Jim. “Don’t close out a card even if you get a new one. You don’t have to use them if you leave them open.” This gives you a longer, more stable credit history that helps improve a score.

9. Pay off your balance every month, if possible.
   “Even if you do not have a card that requires this, getting your credit card balance down to zero every month will really help your credit score.” Creating a simple monthly budget and sticking to it is a great way to achieve this.

Jim acknowledges that there are essentially an endless number of ways to improve a credit score, and that the above nine methods may not be applicable to everyone or every situation. Call your local Village Bank branch to better understand how to manage your credit score.