United Way
of Massachusetts Bay
and Merrimack Valley

February 14, 2017

Think you know credit? These small strategies can make a big difference

These credit building strategies used at our financial opportunity centers help individuals and families in need increase their net worth. They’ll work for you too!

Anyone who has applied for a mortgage, car loan, rental agreement, credit card, and many other life essentials, knows that a good credit score can make or break you. But what exactly goes into this magic number? Why does it matter so much?

And for a family focused on paying rent and putting food on the table from month to month, why should they spend their time worrying about this, over other essential needs?

Because increasingly, credit is becoming the key to financial success. That’s why, in partnership with Citizens Bank, United Way launched the Financial Learning Empowerment Institute to train financial coaches on the most recent credit trends and tools, so they can empower clients to take charge of their financial futures.

Here are some facts that have helped our coaches and clients understand credit and improve their finances.

17-feb-stat-graphic_increasedincomeLower credit can seriously cost you over time

Low or poor credit can have a snowball effect that costs consumers significantly more over time, making it even harder for people to break the cycle. In fact, the Credit Builders Alliance estimates that the average consumer with sub-optimal credit will pay $200,000 more in interest and fees over a lifetime than those with good credit. That is a huge amount for any family, but especially for those struggling to make ends meet.

To keep interest and fees in check, pay as much of the balance as possible and try to pay off higher interest cards first.

Your credit score can change at any time

When you get your credit score, it is a “point in time” snapshot of your current credit standing, which can change at any time. That’s why it’s important to always pay bills on time and keep tabs on your credit score to monitor for fluctuations and potential fraud. This way, you won’t be surprised when you apply for that new car loan and the number your lender sees doesn’t match the score you checked 6 months ago.

Be wary of “free credit report” websites

You’ve probably seen advertisements for many different websites that provide free credit reports and scores, but they aren’t affiliated with any financial or government institution. These might not be quite as reliable as you think. Many of them do not use the standard FICO scoring method, or use an outdated formula, so the score you get from these sites is less likely to be in line with what financial institutions will see.

You can get a free annual credit report from government approved providers at annualcreditreport.com. Many banks also offer frequent credit score updates to their customers, which are more reliable.

Keep an eye on credit utilization

This is one of the most important factors in your score. Exceeding 30% of your credit card utilization (the ratio between what is owed and your total allowed credit) at any point, on any card, can significantly impact your score and label you as a “risk”. This calculation looks at your usage per card, as well as overall. So, for example, it’s better to have two cards at 25% of their credit limits than one card at 50% and the other at zero.

To help manage this, some credit cards will let you set email or text alerts when you are close to hitting a certain balance. You could also request to increase your limit, as long as it won’t tempt you to overspend.

Knowledge is power – and money

The more you know about credit, the more effectively you can manage it and put more dollars in your pocket. This is true for anyone. By focusing on credit building with our financial opportunity clients, individuals and families who were struggling have netted significant results.

Last year, clients who accessed services through United Way’s financial opportunity centers saw a 52 point credit score increase, and clients in our financial opportunity programs saw a $313 average increase in their monthly net income. In the process, they also learned solid financial skills that will continue to generate positive gains well into their future.