Can A Credit Union Help Build Or Fix Your Credit Score?
Building credit with a credit union is easy! Credit unions, including the Credit Union of Southern California (CU SoCal), can help individuals build and fix their credit score.
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Because credit unions are not-for-profit, they can offer members numerous benefits that can directly and indirectly build an individual’s credit score. Credit unions provide many of the same financial services as those provided by traditional banks, but typically at a lower cost and with better interest rates which helps credit union members save more and spend less.
For example, CU SoCal offers a special Credit Builder Loan specifically created to help members raise their credit score. If you’re interested in consolidating credit card debt, CU SoCal’s balance transfer fees are very low, which makes consolidating debt less expensive than using a traditional bank.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
Read on to learn more about building credit with a credit union.
What Is Credit?
According to the credit reporting agency, Experian, “Credit is the ability to borrow money or access goods or services with the understanding that you'll pay later.”
Credit transactions involve a borrower and a lender. Credit unions, banks, and service providers are all examples of lenders. Merchants such as such Home Depot, Amazon, Target and many others are lenders too and can issue credit cards to qualifying individuals. As you can see, credit comes in many forms!
Credit is important because it’s an integral part of doing business in the world. For example, a credit card lets us make in-person and online purchases, like paying our phone and utility bills or purchasing movies on Amazon.
A credit history and credit score are the primary factors lenders will look at and use to determine a borrower’s ability to repay a loan. Having good credit means you’ll benefit from better interest rates, more buying power, and better loan terms. Those are the “rewards” for being a low-risk to lenders.
How Credit Scoring Works
Credit scoring is a system creditors use to help determine whether to give you credit.
Your credit history — including information about your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts — is collected from your credit applications and your credit report.
A credit scoring system awards points for each factor. A credit score generally indicates how creditworthy you are, that is, how likely it is you will repay a loan and make on-time payments. Lenders look at credit scores to determine who is most likely to repay a debt.
The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. A FICO score will fall between 350 (high risk) and 850 (low risk). Here’s how FICO creates individual credit scores:
Payment History (35%). This is the most important factor in a FICO Score. Payment history keeps track of whether you have been able to meet all of your payments on time when payments are due. This can take into consideration your payments on credit cards, mortgage, car loan, student loans, medical bills, and other personal debt. The more consistently you complete your payments, the higher your score will be.
Amounts Owed (30%). Having credit accounts and owing money on them doesn’t necessarily mean you are a high-risk borrower with a low FICO Score. However, if you are using a lot of your available credit, this may indicate that you are overextended—and banks can interpret this to mean that you are at a higher risk of defaulting. Amounts owed can also be referred to as “debt burden.”
Length of Credit History (15%). Your credit history length accounts for about 15% of your credit score. The longer you have had your credit accounts, like a credit card, the better a potential lender is to see how you manage debt. If you've successfully paid your credit card bill each month for several years, lenders will see you are a reliable borrower.
Credit Mix (10%). FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Don't worry, it's not necessary to have one of each.
New credit (10%). Research shows that opening several credit accounts in a short amount of time represents a greater risk—especially for people who don't have a long credit history.
Credit Inquiries are another factor that can affect an individual’s credit score. There are two types: “hard inquiries” and “soft inquiries.” According to FICO.com
, soft inquiries such as viewing your own credit report will not affect your FICO Score. Hard inquiries such as actively applying for a new credit card or mortgage will negatively affect your score. However, more important factors for your scores are how timely you pay your bills and your overall debt burden as indicated on your credit report.
How Credit Unions Can Help Build Your Credit Score
Here are some of the ways credit unions can help you raise your credit score and improve their financial situation:
Credit Builder Loan. A credit builder loan
has a term of six to 24 months, with amounts ranging from $300 to $1,000. After you apply and are approved for the loan, the credit union or bank will deposit the full loan amount into an account for you. You’ll make monthly payments over the course of the loan term until the full amount is paid. Upon satisfaction of the loan, the money will be released to you. As you make on-time monthly payments, you build credit because all payments are reported to the credit bureaus.
Easy Balance Transfers. Transferring high interest loan and credit card balances to a credit union can save you money on monthly interest payments and cost you less than it would to transfer and consolidate funds elsewhere. For example, CU SoCal members can use the CU SoCal Topaz Visa card to transfer high interest revolving debt at 0% APR for nine months. You can also use the card for new purchases.
Fewer Fees. Lower service charges or even no service charges are possible on all types of accounts because credit unions use their profits to reduce costs for members.
Competitive Rates. Credit unions provide lower interest rates for all types of loans, including auto loans, personal loans, home equity loans, and home equity lines of credit (HELOCs). Lower rates means more money in your accounts that you can use to pay down your debts. Keeping debt low is one of the keys to having a good credit score.
Automatic Payments. Signing up for auto pay means you’ll never be late on a payment, whether it’s a mortgage payment, utility bill, credit card bill or other bill that’s due monthly. Late payments are reported to the credit bureaus and can reduce your credit score. Automatic (auto) payment means you’ll have on-time payments which can raise your credit score, especially if you’ve paid late in the past.
Financial Planning Resources. Most credit unions provide their members with free resources on financial education, as well other resources and services.
Credit Union vs. Banks vs. Online Lenders
There are two major differences between credit unions and banks:
1) There is usually no restriction on who can get services from a bank, whereas most credit unions have membership requirements to join.
2) Banks are almost always for-profit institutions, and while they tend to offer competitive, low-interest rates for loans, they almost always have higher fees than credit unions, which are member-owned not-for-profit organizations.
Online or “digital lenders” can be a reliable source for attaining a mortgage or personal loan, however, they are not regulated to the extent that traditional banks and credit unions are regulated. Whereas many states have set interest rate caps, online lenders can avoid these caps. They tend to charge higher interest rates on loans by partnering with federally regulated banks
, which are generally not subject to state rate caps.
As we’ll discuss further on in this article, there are numerous benefits associated with joining a credit union. Learn more about Credit Unions vs. Banks
Are Credit Unions Safe?
Credit unions are safe an backed by the National Credit Union Administration (NCUA), an independent agency created by the U.S. government to regulate and protect credit unions and their owners. Just like the FDIC, which insures banks, the NCUA provides up to $250,000 insurance to all credit union members.
Learn more about credit union safety
Other Credit Union Benefits
Personalized Service. From educating members on complex financial matters to providing tailored services to meet their needs — credit unions will do everything in their power to help their members thrive. Since their goal is not to make a profit, they pay more attention to their members.
Higher Rates on Savings Accounts. Instead of distributing profits among shareholders in the form of dividends, credit unions share their “profits” with all of their members in the form of low rates on loans, higher rates on savings accounts, and lower fees overall.
More Forgiving Qualifications Standards. If your credit history is compromised or you downright don’t have a credit history, a conventional bank might not accept your loan application or even let you open an account with them.
Community Presence. Credit unions are known for giving back to the community by organizing fundraisers, providing grants and scholarships to deserving students, donating money to the less fortunate, and through efforts that help benefit members directly. CU SoCal gives hundreds of thousands of dollars to local communities every year!
See more credit union advantages here
How To Join A Credit Union
Credit unions typically only allow membership if you belong to a particular organization, work for a certain employer, or live, work, attend school or religious services in a certain geographical area. Anyone who lives, works, attends school or religious services in Los Angeles, Orange, San Bernardino or Riverside County can join Credit Union of Southern California.
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Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
Join CU SoCal Today!