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Your credit score is a measure of factors that may affect your ability to repay the credit. It’s a complex formula that takes into account how you’ve repaid previous loans, any outstanding debt, and your current salary.
A credit score is dynamic and can change positively or negatively depending on how much debt you accrue and how you manage your bills. The factors that determine your credit score are called The Three C’s of Credit – Character, Capital, and Capacity.
From your credit history, a lender may decide whether you possess the honesty and reliability to repay a debt. Considerations may include:
• Have you used credit before?
• Do you pay your bills on time?
• How long have you lived at your present address?
• How long have you been at your present job?
A lender will want to know if you have valuable assets such as real estate, personal property, investments, or savings with which to repay the debt if income is unavailable.
This refers to your ability to repay the debt. The lender will look to see if you have been working regularly in an occupation that is likely to provide enough income to support your credit use.
• The following questions may help the lender determine this:
• What is your current salary?
• How many other loan payments do you have?
• What are your current living expenses?
• What are your current debts?
• How many dependents do you have?
Bouncing Back: Economic Recovery in Minority Banking
The number of black-owned banks in the U.S. continues to decline, at a time when many African-American communities are still coping with the effects of the mortgage crisis and are in need of basic financial services.
Black-run banks took a bigger hit from the housing crisis than the banking industry at large, and they’ve struggled financially in recent years as the communities they serve have suffered higher-than-average job losses and home foreclosure rates.NerdWallet
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Building a Strong Credit Score from Scratch
Young adults who grew up during the recent recession tend to be cautious about debt, and data on millennials’ credit scores suggest that some even make it a rule to avoid using credit cards altogether. What they may not realize is that having no credit history can limit your options almost as much as having bad credit. But how do you take that first step?
Obtaining a starter card and using it responsibly can boost your credit score over time. If need be, you can ask a family member or significant other with well-established credit to co-sign your credit application or add you as an authorized user on his or her card. Many card issuers will report authorized users’ activity to the credit bureaus, but it’s not a guarantee. If you’re unsure, call the issuer and ask.
If you can’t piggyback on someone else’s good credit, you can apply on your own for what’s called a secured credit card. These cards require a cash deposit as collateral, and financial institutions like Citizens Trust Bank offer them for customers interested in building a good credit history. If you establish a record of paying on time, you may be able to qualify for an unsecured credit card, and get your deposit back.
When using your card, following these guidelines should boost your credit score:
Pay on time
Your history of bill payments accounts for more than a third of your FICO score, the most widely used gauge of creditworthiness. A strong credit score is the key to affordable rates for mortgages, auto financing and other loans. If you can’t pay your balance in full each month, at least make the minimum payment to avoid a blemish on your credit history. Using Citizens Trust Bank online bill payment or setting up auto-pay are convenient ways to pay your bills on time.
Watch your balance
Try to keep your balance below 30% of your spending limit at all times. Don’t charge up to the max, because it will not reflect well on your creditworthiness. Your credit utilization — that is, your outstanding balance divided by your credit limit — makes up 30% of your FICO score.
Build up a track record
The longer you keep your accounts open, and in good standing, the better. The length of your credit history accounts for 15% of your score.
Limit new applications
Don’t apply for too many new accounts in a short period of time, or you might appear to credit bureaus to be in dire need of credit. This counts for 10% of your score.
Consider your mix of credit accounts
Credit bureaus consider the different types of credit you use (10% of score). Over time, it’s generally positive to have a diverse mix including credit cards, mortgages and auto loans.
Get in the habit of reviewing your credit reports regularly. You can get one free report a year from each credit bureau — Experian, Equifax and TransUnion — from AnnualCreditReport.com, so you can check for errors and get the satisfaction of watching your credit score rise.
Jeanne Lee, NerdWallet
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