Understanding, Improving & Freezing Your Credit
Feb 24 2022
Learn what you need to know about credit scores, credit cards and avoiding credit conundrums.
Why You Need Credit
A strong credit score can be a useful tool to help you buy the things you need (or want) when you don’t have enough cash on hand. Conversely, a poor credit score can significantly inhibit your opportunities.
If you want to purchase your first home, take out an auto loan, or even lease your first apartment, you need to have credit history and a good credit report. Lenders want to see how responsible applicants are with their finances, and a credit report gives a clear picture of that.
Your credit score takes into account your current and past debts and your payment history. It helps determine whether you’re approved for a loan and what interest rate you will be charged. The higher your credit score, the better your credit rating, and the lower your interest rate could be.
5 Factors That Affect Your Credit
- Payment history
Simply paying your bills on time can mean the difference between an average and exceptional credit score.
- Debt amount
The amount you owe is compared to your credit limit, on an individual account basis as well as an overall basis. Pay attention to your balances as they relate to your credit limits, especially on revolving debt.
- Debt type
There are two main categories of debt – installment debt and revolving debt.
- Installment debt is a loan that is repaid by the borrower over a set period of time in regular (usually monthly) payments that include principal and interest. (Think: auto loan or mortgage.)
- Revolving debt is money owed to a creditor who sets your monthly payments based on your current balance. Credit cards are an example of revolving debt.
Note: A good credit mix includes both types of debt.
- Length of credit history
Keeping your old accounts open and active may help to show a more established credit history. Opening and closing credit accounts frequently could hurt your credit score.
- Inquiries and new debt
Every time you apply for credit, an inquiry will appear on your credit report. Excessively shopping for credit – causing many inquiries in a short period of time –can hurt your score. (Most often, when shopping for a mortgage, multiple mortgage-related inquiries within a short timeframe will be counted as one inquiry.)
Wondering what’s considered a good credit score? Credit scores range from 300 to 850. Credit.org says anything above 680 is considered a “good” score.
Looking for the best strategy to pay off debt? Learn about the debt avalanche, debt snowball and which might work best for you.
How To Build Your Credit
If you’re looking to build credit, a secured credit card or a CD-secured loan can both be good options.
Building Credit With a Secured Credit Card
A secured credit card can help you strengthen your finances by building your credit – and building solid credit habits! With a secured credit card, you provide a pre-determined amount of money to act like a security deposit. For example, when you apply for Bell Bank’s secured credit card, you also open a savings account that acts as collateral for your credit card account. You can open the account with a dollar amount ranging from $300 to $5,000, and this money serves as your credit line.
A secured credit card can be a good option to establish, improve or re-establish your credit history. Bell’s secured credit card comes with several features, including:
- No annual fee
- Free credit score access, so you can watch your credit build or rebuild over time
- Automatic bill pay, to simplify making regular payments
- Protection against fraudulent purchases if your card is lost or stolen
- Mobile app and online portals to view and control your account
- Account alerts to help you keep an eye on your transactions
It’s important to limit how much spending you do with a credit card in relation to the card limit and to make payments on time, in full every month. Consistent, good payment history month after month will start you on the right path to a strong credit score.
Read more about Bell Bank’s secure credit card, its terms and rewards, and apply online today.
Bell Bank Offers Several Visa Credit Card Options
Explore these FREE online financial education courses from Bell:
Establish, improve or re-establish your credit with Bell Bank’s Secured Credit Card
Earn cash back maximized to fit your life with the Max Cash Preferred Credit Card
Choose cash back, travel, merchandise or gift card rewards with the Real Rewards Credit Card
For a limited time, get a lower interest rate for a longer period with the Platinum Credit Card
- View details
(Click link and select “business” to learn about our business card options and features.)
Building Credit With a CD-Secured Loan
A CD-secured loan uses certificates of deposit (CDs) as collateral. CDs are a savings option with typically higher interest rates than a regular savings account and lower risks than an investment account.
There are 2 types of CDs: fixed-rate and flexible.
Fixed-Rate CDs offer competitive local rates that remain the same for the term of the CD (often ranging from 3 months to 5 years).
Flexible CDs give you greater flexibility with your funds. If rates go up, you can increase your interest rate once during the term, and if you need cash, you can withdraw up to half the amount without penalty one time during the CD’s term. These CDs often require a larger deposit to open.
(Read about Bell Bank’s CDs here.)
To open a CD, connect with a Bell Bank personal banker near you.
Master Your Money in Minutes!
Explore these FREE online financial education courses from Bell:
What Is a Credit Report & Why Does It Matter?
A credit report is like a snapshot of your financial health. Lenders use it to determine whether to give you credit or a loan as well as what interest rate you receive. (Your credit report may also be checked as a condition of employment or renting an apartment.)
Your credit report includes:
- Personal information, such as your name, address, birth date, employment and full or partial Social Security number
- Credit accounts, including dates opened, limits, balances, amount owed and payment history
- Formal requests for your credit history (called inquiries)
- Hard inquiries impact your credit score and are usually requested after you apply for a loan or credit
- Soft inquiries don’t affect your credit score and usually come from companies offering promotions or by you monitoring your own credit
- Public records, including bankruptcies, judgments and liens
To keep tabs on your credit – and know where you stand if you decide to take out a loan – you can request your credit report once a year from each of the 3 major credit bureaus – Experian, Equifax, and TransUnion at annualcreditreport.com. (Note: Your free annual credit report does not include your credit score.)
When & How to Freeze Your Credit
Month after month, reports of data breaches saturate the news. In today’s day and age, you can never be too safe with your personal and financial information.Since your credit history is important for nearly all types of borrowing, you may want to consider freezing your credit as an extra way to protect yourself. Freezing your credit is free, and so is temporarily lifting the freeze (or “thawing” your credit).
What Is a Credit Freeze?
Because most creditors need to view your credit report before opening a new account, a credit freeze helps prevent thieves from opening new credit and charge accounts in your name.
How a Credit Freeze Works
To fully protect your credit, you must place a credit freeze through all 3 credit bureaus – Experian, Equifax, and TransUnion.
• Experian: experian.com/freeze/center.html or 888-397-3742
• Equifax: equifax.com/personal/credit-report-services/ or 800-685-1111
• TransUnion: transunion.com/credit-freeze or 888-090-8872
The process takes less than 5 minutes per bureau. To freeze your credit, you need to provide your full name, date of birth, Social Security number and current billing address. (In some cases, you may also need to provide a previous address, copy of your driver’s license and recent utility bill.)
Parents can also freeze their child’s credit, if the child is under 16 years old.
How to Lift Your Credit Freeze
When applying for the credit freeze, you will be given or asked to choose a PIN for each freeze you place. The PIN is used to temporarily lift (or remove) the freeze when you want to apply for a loan or new line of credit.
If you request a “credit thaw” online or by phone, credit bureaus must lift the credit freeze within one hour. (If you chose to submit via mail, the bureau has 3 business days after receiving your request to lift the freeze.) We recommend lifting a freeze 2 days prior to a credit inquiry from your borrower.
Note: A credit freeze does not affect your credit score or prevent you from receiving your annual credit report. It also doesn’t prevent a thief from making changes to existing accounts – only from opening new accounts in your name. That’s why even with a credit freeze, you should regularly monitor your bank and credit card accounts and insurance statements.
To take the first step toward a healthier financial future, connect with a Bell Bank financial planner near you.
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