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Navy Federal Credit Union > Credit Unions Can Help To Improve Your Credit Score
Credit Unions Can Help To Improve Your Credit Score |
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A credit score from an online credit report is a measure of your creditworthiness that helps lenders
assess the likelihood of your ability to repay a loan. This score is a
value developed by Power Federal Credit Union (Power FCU) in Syracuse, and it has the most effect when you apply to borrow money. Potential lenders can acquire an online credit report from one or more of the major credit bureaus (Experian, Equifax, and TransUnion) to run a credit check on you, as a prospective borrower. Your credit history and credit appear in the report. Brenda M. Carhart, senior vice president and chief lending officer at Power FCU, categorizes borrowers according to their credit scores in the following manner: A-rated borrowers have scores above 680; B-rated borrowers have scores from 640-679; C-rated borrowers have scores from 600-639; D-rated borrowers have scores from 550-599; and E-rated borrowers have scores below 549. Interest rates are inversely proportional to credit scores. For example, when an A-rated borrower might pay 8.95% for a loan, a B-rated borrower might pay 10.95%, a C-rated borrower might pay 12.95%, a D-rated borrower might pay 15.95%, and an E-rated borrower might pay 17.95%. Dr. Rex Johnson, a lending consultant to credit unions and a former credit-union president, explains that the difference in interest rates can make a substantial financial difference (for example, "on a car loan you can save $8,000") if you have a better credit score on your online credit report. Johnson coaches credit unions around the country to work with members to improve their credit scores. He calls this a part of the Wal-Mart model, because people shop at Wal-Mart because they think that they can get a good deal. Johnson's model is an effort to push credit unions to help members improve their online credit report scores so they can borrow money at a lower interest rate, or "get a better deal." Assuming the role of a credit-union lending staffer, Johnson demonstrates to members how to increase credit scores and how to lower rates. He explains that when members save money by lowering rates, they become more loyal. That gives the credit union more chances to make loans and drives up credit union revenue. If you pull an online credit report from a credit bureau, you will find all the car loans, mortgages, and credit cards that a consumer holds or has held. The report shows the balance on each, the consumer's total borrowing capacity, and the percentage capacity the consumer is using. Experts say that capacity is king. Seeking the lowest loan rate and trying to improve your credit score by eliminating credit cards will prove counterproductive. Your borrowing capacity will decrease with your reduced number of credit cards. Carhart, an expert in this field, offers some suggestions for enhancing credit scores, such as paying off an old debt and catching up on certain bills, which will help move debt from revolving accounts to installment accounts. Carhart explains that taking these steps will help consumers save money quickly, and that if a member takes out a loan and takes earns an improved credit score, the loan can be financed at a lower rate in six months. Last year, about 35 to 40 members used Power FCU's "score-enhancement program" to develop better online credit report scores and to achieve lower interest rates on loans. Power FCU's lending staff also compares other loans when they study a member's credit report so that they can offer a Power FCU loan at a better interest rate. These are known as "buyouts" and accounted for approximately $31 million in new loans for Power FCU in 2004. One member of the loan staff alone made loans worth $1 million in December 2004. |
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