Building Your Credit Score

Building Credit Scores

In honor of National Credit Education Month, the Ohio Housing Finance Agency (OHFA) wants to provide Ohioans with a few tips on how to improve their credit scores. A strong credit score is important when securing a mortgage loan, so we recently asked Ohio's housing counseling agencies for their top suggestions for individuals wanting to build or improve their credit or FICO® scores. The top five tips are:

  1. Lower credit card usage.
  2. Pay bills on time every time.
  3. Bring past due bills current.
  4. Understand your credit scores.
  5. Review your credit reports.

Credit cards are a handy resource for building one's credit, especially if someone is just starting out and needs to establish a positive credit history. However, credit card usage should be kept to a minimum and balances should be paid off each month when possible so that no interest accrues. Experts recommend not going over the 30% threshold on the credit limit for any credit card. For example, if the spending limit on a credit card is $500, then no more than $150 should be charged to that card. Do not overutilize credit, and if carrying a credit card balance is necessary, try to keep it low.

The second recommendation is to pay all of your bills (e.g., loans, credit cards) on time every month. Never let credit cards or loans become 30 days late! Staying current on your bills and paying on time can help improve your credit score. When you pay down your past due debts, it immediately impacts your credit score, so the sooner the debt is paid, the sooner your credit score will improve.

Rounding out the top five are bringing delinquent bills current, understanding what credit scores are, and reviewing credit reports. They all tied for the third highest recommendation from our housing counseling agencies.

Bring past due balances on credit cards, loans, and other bills current, and pay down existing debts. Try and keep your credit card balances paid off or as low as possible. If you run into trouble making payments, contact your creditor to discuss your financial situation. They may be able to work with you and consider options, such as initiating an extended payment plan (especially with utility expenses), or enrolling you in a payment assistance program, etc.

Major credit bureaus (i.e., Equifax, Experian, and TransUnion) use five criteria to determine someone's credit score: payment history, amounts owed, length of credit history, new credit, and credit mix. A credit score is a numeric value that indicates how well someone makes financial decisions. Credit scores range from 300 to 850. Therefore, a higher score reflects the individual's ability to manage financial products, which turns into financial buying power with often lower interest rates. A lower score can result in higher interest rates, which can cost a borrower more money. To qualify for OHFA's first-time homebuyer down payment assistance programs, participants must have a minimum credit score of 640.

Finally, while reviewing your free monthly credit reports from Equifax, Experian, and TransUnion, highlight the vendors used, amounts owed, and amounts available. If there are any errors on the reports, reach out to the company and determine the status of the item. Errors on your credit report can lower credit scores.

If you need additional assistance with building or improving your credit scores, nonprofit organizations like a U.S. Department of Housing and Urban Development (HUD)-approved housing counseling agency or Consumer Credit Counseling Services, a bank loan officer, and some banks offer specialized credit services at no cost. Keep in mind that raising a credit score takes time and diligence consistently working a financial plan.

OHFA thanks the housing credit agencies, agents, and counselors who contributed to this blog. They are:

Fair Housing Contact Service, Akron, Ohio
Community Housing Solutions, Cleveland, Ohio
OSU Extension Clermont County, Owensville, Ohio
Rachel Goff, Neighborhood Housing Partnership, Springfield, Ohio
NID HCA Pope Cleveland, Cleveland, Ohio
Youngstown Neighborhood Development Corporation, Youngstown, Ohio