MyChart®
For something that has such a significant impact on our lives, we spend surprisingly little time learning how it works.
We’ve all heard horror stories about credit. Someone who was denied a loan because they don’t have enough credit history. Another person in a similar situation ends up with a higher-than-expected interest rate. Others find themselves buried under credit card debt that seemed manageable at first.
Credit doesn’t need to feel mysterious or intimidating. A few basic concepts can help you understand what lenders are looking at and why your credit matters.
What Is Credit Anyway?
When people talk about credit, they’re usually referring to two related things: their credit history and their credit score.
Your credit history is your track record with debt.
Your credit score is a three-digit number lenders use to assess risk.
Why Credit Matters
Consider two people financing the same $35,000 vehicle. One qualifies for a 5.99% annual percentage rate (APR), while the other qualifies for a 9.99% APR. The borrower with the lower rate would pay about $580 a month, compared with about $649 for the borrower with the higher rate. Same vehicle. Nearly $5,000 difference in interest.
Credit affects more than just loans and credit cards. It may also be reviewed when you’re renting an apartment, applying for certain jobs, or even seeking a security clearance.
What Affects Your Credit Score?
Two factors have the biggest impact on your credit score.
The first is payment history. Late payments can have a lasting impact, particularly once an account becomes 30 days past due and is reported to the credit bureaus.
The second is credit utilization, or how much of your available credit you’re using.
Consider a credit card with a $2,000 limit. A $200 balance looks very different from a $1,600 balance, even if both cardholders make their payments on time. High balances relative to your credit limit can lower your score.
A common guideline is to keep balances below 30% of your available credit, though lower is generally better.
Using a Credit Card Wisely
Credit cards can be helpful when you’re trying to build or rebuild credit, but they’re also where many people get into trouble.
One approach is to use a card for purchases you’d make anyway, such as a mobile phone bill, subscriptions, or groceries, and pay the balance in full each month.
Paying the balance in full avoids interest charges. Contrary to popular belief, you don’t need to carry a balance to build credit.
But be careful. It’s easy to build a balance that’s larger than what you can afford to repay each month. Once a balance starts carrying from month to month, interest charges can make it harder to catch up.
The Minimum Payment Trap
Making only the minimum payment each month doesn’t necessarily mean you’re making much progress. Your account stays current, but the balance may shrink slowly. That debt can stick around for years and cost you far more than you originally charged.
Many credit cards require a minimum payment of only 2% to 3% of the balance. If you’re adding new charges faster than the balance is shrinking, the debt can continue to grow. Even if you stop using the card altogether, paying only the minimum can make it difficult to make progress because so little of the balance is repaid each month.
Not sure how long it could take to pay off a balance? Try Frontwave’s Credit Card Payoff Calculator to see how different payment amounts can affect your payoff timeline and total interest costs.
Keep an Eye on Your Credit
Review your credit report regularly for errors and unfamiliar activity. Federal law allows you to obtain free credit reports from each of the three major credit bureaus through AnnualCreditReport.com.
Review your account statements as well. Unauthorized charges and reporting errors are easier to address when they’re caught early.
If your credit needs work, focus on the basics: bring past-due accounts current, make payments on time, and reduce outstanding balances.
Need Help?
If you’re working to build or improve your credit, Frontwave offers financial counseling, educational resources, and products designed to help.
If you have questions about your credit or want to explore your options, we’re here to help.
Looking for more information? The Frontwave Blog includes additional resources on understanding credit, managing debt, and building healthy financial habits.
Come home to Frontwave. Get $350.*
Where you bank should feel like home. A place that has your back. Fair rates. Straight answers. Real people when you need help.
That’s Frontwave. We’re Member-owned and built to put you first. Open a qualifying account and earn up to $350.*
Learn more at frontwavecu.com/new-member.
About Frontwave Credit Union
Frontwave Credit Union is the trusted financial partner of TrueCare, offering smarter banking, real savings, and personalized support. Employees and patients enjoy no-fee checking, exclusive Member perks, access to more than 5,000 shared branches, and over 30,000 fee-free ATMs nationwide.
*Membership and promotional requirements apply. See frontwavecu.com/new-member for details.
