Credit Building Blocks

Interactive Video

[A woman celebrating while holding up a credit card.]

Narrator: Why do you think having access to credit is important? [Two women looking at a tablet together. One woman is holding the tablet while the other woman is holding a credit card.]

[On screen text]: Credit is power.

[A woman celebrating while holding up a credit card.]

Because credit is power. It plays a key role in helping people afford housing, education, and transportation. It also can affect employment and housing decisions when you submit applications. [Icons of housing, education, transportation, and a credit application are shown.]

[An application with the word “approved” stamped on it.]

Today’s economy relies heavily on credit analytics to make financial-related decisions. Lenders use financial analysis tools to determine borrowers’ creditworthiness when deciding whether to approve loans or other forms of credit. Property managers and landlords may conduct background checks to determine if applicants are reliable in paying bills on time. Employers may use credit reports as part of their background checks for applicants to learn more about their character—are they reliable, responsible, and good decision makers? 

[A man looking melancholy while holding up his credit report that contains a score of 427.]

Credit leaves a documented trail of a person’s positive or negative financial decisions. Past actions such as late or missed payments or carrying large amounts of debt can be indicators that an applicant is a higher risk to lenders, landlords, and employers.

[Man smiling with a credit building block in his thought bubble.] 

So, let’s focus on the positive ways to build and use credit.

[A credit report with a credit score of 475 that lists late payments, a foreclosure, and a bankruptcy.]

Make sure all your bills are paid on time. Even if you are late for some reason, pay a bill immediately. Payment records aren’t reported to credit agencies until you’re 30 days late. Even if you are past your grace period and your lender charges a fee, that’s better than a negative mark on your credit report! [A late payment plus a late fee is shown in lieu of a bad credit report with a 475 score.]

[A “lower debt” building block is added next to the paying on-time credit block.] 

Pay down debt in a reasonable timeframe. For credit cards, if you can, pay the balance in full each month. If you can’t, pay more than the minimum required payment and set up a plan to pay it off as quickly as possible. For loans, pay your fixed payment each month and pay more on the principal to pay it off early, if you can. 

[A “minimal credit use” building block is added to the stack.]

Try not to overuse credit. You don’t need to carry a balance to demonstrate a good credit history. Maintain low balances on credit cards so you have plenty of available credit. 

[A credit card statement with a $2,500 balance which reduces to a $150 balance.]

[A “credit inquiry limits” building block is added to the stack.] 

Keep the inquiries on your credit minimal. For example, if you apply for a store credit card to get a promotional discount, it puts a credit inquiry on your credit report. Too many inquiries in a short period of time can negatively affect  your credit report.

[A credit report with a score of 745 which then reduces to 475 after several credit inquiries.]

[A “monitor accounts” building block is added to the stack. Images of a paid bill, a savings account, and a credit report with error alerts.] 

Monitor your bills, bank accounts, and credit reports from the three credit agencies regularly. You can identify any mistakes or fraudulent activity quickly and take action to resolve it.

[A smart phone with a call to the bank in progress.]

Take a look at Gemma’s, Mariah’s, and Thomas’s financial situations. What credit building blocks can they use to improve their financial standing?

[On screen text]: Select each person to hear their individual situations.Select the best option to improve their financial standing.

Financial Situation 1: Gemma

Financial Situation 2: Mariah

Financial Situation 3: Thomas

Financial Situation 1

[Gemma holding her cell phone in her hands with a shocked expression on her face.]

Gemma recently learned that someone has been using her bank card number for online purchases. She didn’t notice because they were buying small items that didn’t show up as big balance changes.

Which credit building block should Gemma work on?

Option 1: Pay bills on time.

Option 2: Pay down debt quickly.

Option 3: Don’t overuse credit.

Option 4: Keep credit inquiries to a minimum.

Option 5: Monitor accounts and credit reports regularly.

Feedback: Gemma needs to monitor her accounts regularly in detail (beyond looking at the balance) to look for mistakes and fraud.

Financial Situation 2

[Mariah holding a laptop, scratching her head.]

Mariah was on vacation for 2 weeks and realized when she got back that she hadn't paid her mortgage. She’s now 10 days late and past her lender’s grace period.

Which credit building block should Mariah work on?

Option 1: Pay bills on time.

Option 2: Pay down debt quickly.

Option 3: Don’t overuse credit.

Option 4: Keep credit inquiries to a minimum.

Option 5: Monitor accounts and credit reports regularly.

Feedback: Mariah needs to pay her bills on time. One option is she can set up auto pay. She still should pay her lender immediately and pay any late fees.

Financial Situation 3

[Thomas holding his phone looking surprised and frustrated.]

Thomas has applied for several credit cards online in the past 2 weeks. He keeps getting rejected. 

Which credit building block should Thomas work on?

Option 1: Pay bills on time.

Option 2: Pay down debt quickly.

Option 3: Don’t overuse credit.

Option 4: Keep credit inquiries to a minimum.

Option 5: Monitor accounts and credit reports regularly.

Feedback: Thomas can work on two building blocks actually. He should check his credit report for any mistakes. He has created another problem in the process of applying.

[A credit score gauge with the needle pointing at the “Very Good” range of scores, 740-799.]

The payoffs of a high credit rating are worth it. You may get lower interest rates on loans, credit cards, and car insurance; no red flags that affect employment or housing opportunities; utility setups that don't require deposits; and more negotiating power in general.