Building Your Credit
Some of my earliest money memories came from watching my parents — and just about everyone we knew — struggle with credit. I have a vivid memory of listening from the back seat of a Chevy Lumina as my mom and dad argued about going to credit counseling. More than once, I’ve watched someone cut up their cards with scissors, resolving to do better, only to declare bankruptcy a few months later.
These experiences taught me that credit was evil. Something to be feared and avoided. This outlook is common in the Native community, where mistrust of colonizer institutions keeps many of our people from participating in the credit system at the same rate as other Americans.
But today, credit scores are used in so many different ways that this avoidance costs us money and opportunities. To illustrate:
If you don’t have a high enough credit score, landlords likely won’t rent to you.
Cable and utility companies charge higher deposits for customers with low credit scores.
Credit scores are used to determine the rates you’re quoted for insurance policies.
A credit score is often needed to qualify for major purchases like a cell phone contract.
Credit scores determine your eligibility for credit cards, mortgages, and car loans.
Credit scores determine how much interest you pay when you borrow.
Lacking a credit profile can also prevent you from accessing basic financial tools like a checking account, since banks look for credit-related indicators to confirm your identity.
A good credit score is the key to unlocking financial opportunities. But the journey to building a good score can be complex and unintuitive.
In fact, just talking about your “credit score” as if it were a single, solid number is misleading. There are multiple credit bureaus and each of them has multiple credit score products that they sell to different types of lenders. Your score will vary based on which bureau and product is being used.
Because of this complexity, an entire industry has evolved to help people improve their scores. But each of these options comes with its own set of caveats.
Credit counseling and debt relief services are focused on paying down debt. Having less debt can ultimately improve your score, but the tactics used to accomplish that goal (like closing accounts) can actually hurt your score in the short term.
Rent and bill reporting services promise to improve your credit by reporting your usual payments to the bureaus. Results for these solutions have been mixed because not all bureaus accept this data and not all versions of your score take it into account.
Credit builder solutions may provide faster paths to improving your credit through products like secured credit cards. It’s important to carefully review these offerings to watch for hidden fees.
The best thing you can do to take control of your credit score is to educate yourself about what drives your score and act accordingly.
To read more, check out our Credit 101 article in the Resources tab of the Totem app!
