1. Building (and Keeping) Good Credit
Dr. Alex White
Dept. of Dairy Science
Virginia Tech

2. What is “credit”? Credit History Credit Score
Your “Permanent Record” related to finance
~7 years rolling history of your payments
Credit cards, loans, judgements
Credit Score
Measure of how much risk you pose to a creditor/lender
*Measure of how much money creditors can make off of you

3. Why is “Good Credit” Important
Obtaining loans/credit cards
Good credit = more likely to get approved
More favorable terms from the lender/creditor
Lower interest rates
Good credit = lower risk = lower rates
Lower insurance premiums
Homeowners, auto
Lower stress level in your life

4. Credit History Check yours regularly
AnnualCreditReport.com
CreditKarma.com
Checking your credit history will NOT hurt your credit score
~75% have mistakes
~25% have ‘critical errors”
7-year itch
Bad judgement follows you for 7 years

5. What to Look For Correct name(s) and addresses Correct accounts
Credit cards, student loans, auto loans, mortgages
Correct payment histories
Correct inquiries
Recent loan/credit card applications, test drives
Bogus information
Accounts that aren’t yours
Negative comments that aren’t yours (collections, etc.)

6. So You Found a Mistake Go to AnnualCreditReport.com
Then go to the specific credit bureau
Experian, TransUnion, Equifax
Find the error on that report
Click the “Investigate” button
Provide the required information
Usually get an within 3-5 days showing the corrective action
Call the number (good luck with that)

7. What If It’s Your Fault? So you were late on payment for a few months
It happens, it’s not the end of the world
It will stay on your credit history for ~7 years
You can usually write a short explanation
“I moved and forgot to update my billing address….”
Don’t worry about it. Move on. Smile!
Its impact will “fade” as time passes

8. Credit Scores There are several (~56) credit scores
700 -
300 -
850 -
There are several (~56) credit scores
Beacon/FICO
Vantage Score
Discover, Equifax, TransUnion, Experian
Statistical models => “Black boxes”
Include 5 key factors
Hard to isolate the impact of a specific change
Credit Score simulators
CreditKarma.com

9. Credit Score – Main Factors*

10. Credit Score Typical range of 300-850 Higher is better!
Shoot for over 700
Benefits of a higher credit score:
Quicker, easier loan acceptance
Lower interest rates
Lower auto & HO insurance premiums
CreditKarma.com

11. How to Improve Your Credit Score
Make your bill & loan payments on time
No more than 30 days late
Get a few accounts in your name
Utilities, credit card
Don’t overuse your credit cards
Stay under 10-30% of your credit limit
$200-$600 balance for a $2,000 credit limit

12. How to Improve Your Credit Score
Don’t apply for new credit cards or loans unless you need them
Do not do it often
Don’t have more than 3 credit cards
Includes department store, specialty cards
Does NOT include your debit card (VISA, etc.)

13. How to Improve Your Credit Score
Stay loyal to your cards
Length of relationship is important
Dropping an old card (10+ years) will drop your score
Get a “secured credit card”
Credit limit is tied to a deposit account

14. Remember – Patience!! It takes time (years) to build strong credit
Paying on time, not taking on too much debt, etc.
You probably won’t increase your score by 50 points over the next few months
But keep at it!
Getting rid of old cards isn’t a bad thing
Short term pain, long term benefits

15. Patience
Applying for a new loan or credit card will probably drop your score short-term
But having more “types” of credit may increase your score long term
Practice Uncle Al’s rules for debt management

16. Uncle Al’s Rules for Credit Cards
Don’t use them unless you can write a check today
Never make just minimum monthly payments
Michael Jordan & Richard Petty
Try to pay your balance in full every month*
Don’t have more than 3 cards/person

17. Household Debt Management
Consumer debt payments < 10% of gross income
Auto, education, consumer, credit cards
Housing debt payments (PITI) < 30% of gross income
Principal & Interest, Property Taxes, HO Insurance
Total payments < 40% of gross income

18. Things Change – Relax! Your credit score will change over time
Sometimes when you haven’t done anything!
Don’t waste your worries on credit scores
They’re important, but not critical
Focus on good financial management
Budgeting & tracking your expenses
Saving, investing
Estate planning