Module 5: Building Your Credit

Understanding and Improving Your Credit Score

Introduction

Welcome to Module 5! Let's talk about your credit score – a three-digit number that has outsized influence on your financial life.

Good credit can save you tens of thousands of dollars over your lifetime. Bad credit can cost you opportunities, higher interest rates, and even job prospects in some fields.

The good news? Credit is something you can build and improve, regardless of where you're starting from.

In this module, we'll cover:

What credit scores are and why they matter
How credit scores are calculated
The difference between credit reports and credit scores
Practical steps to build credit from scratch
How to improve a damaged credit score
Common credit myths debunked
Protecting your credit from fraud

Think of your credit score as your financial reputation. Let's make sure it's a good one!

Part 1: What Is a Credit Score?

The Basics

Credit Score: A three-digit number (300-850) that represents how reliable you are at repaying borrowed money

Think of it as: Your financial report card or trustworthiness score

Who uses it:

Lenders (for loans and credit cards)
Landlords (for rental applications)
Insurance companies (for premium rates)
Some employers (for job screening)
Utility companies (to determine if you need a deposit)

Your credit score affects:

Whether you're approved for credit
The interest rates you're offered
How much you can borrow
Whether you need to pay deposits
Sometimes, even job opportunities

Credit Score Ranges

Score Range	Rating	What It Means
800-850	Exceptional	Best rates and terms; easy approval
740-799	Very Good	Great rates; easy approval
670-739	Good	Decent rates; approved for most credit
580-669	Fair	Higher rates; limited options
300-579	Poor	Highest rates; difficult to get approved

The sweet spot: 740+ gets you the best rates and terms on most loans

Fun fact: Only about 23% of Americans have scores over 800

Credit Scores vs. Credit Reports

Credit Report:

Detailed history of your credit accounts
Lists all your loans, credit cards, payment history
Includes personal info, employment, public records
Like your financial biography

Credit Score:

Single number calculated from your credit report
Different scoring models (FICO, VantageScore)
Like a grade calculated from your biography

You have three credit reports (one from each bureau: Equifax, Experian, TransUnion)

You have multiple credit scores (different lenders use different models)

💡 Exercise 5.1: Check Your Credit

Everyone is entitled to free credit reports once per year from each bureau.

Get your free reports at: AnnualCreditReport.com (the ONLY official site)

Strategy: Check one bureau every 4 months to monitor throughout the year

January: Equifax
May: Experian
September: TransUnion

Action items today:

☐ Visit AnnualCreditReport.com

☐ Request your report from one bureau

☐ Review it carefully for:

Accounts you don't recognize (fraud)
Incorrect balances or limits
Wrong personal information
Accounts wrongly marked as late

☐ Set calendar reminders to check other bureaus in 4 months

For checking your actual credit score (the number):

Free options:

Credit Karma (free, shows VantageScore)
Your credit card company (many offer free FICO scores)
Experian (free FICO score with account)

My current credit score: _______

Date checked: _______________

Credit bureau/source: _______________

Part 2: How Credit Scores Are Calculated

Understanding what affects your score helps you improve it. Here's the breakdown:

FICO Score Breakdown (Most Common Model)

1. Payment History (35%) – Most Important

What it is: Do you pay your bills on time?

Includes:

Credit card payments
Loan payments (auto, mortgage, student)
Any payment marked 30+ days late

Impact:

✅ Paying on time = biggest positive factor
❌ Late payments = biggest score killer
❌ Collections, bankruptcies = severe damage

Key takeaway: ALWAYS pay at least the minimum on time. Set up autopay if needed.

2. Credit Utilization (30%) – Very Important

What it is: How much of your available credit are you using?

Calculation: (Total balances ÷ Total credit limits) × 100

Example:

Credit card A: $1,000 balance / $5,000 limit
Credit card B: $500 balance / $3,000 limit
Total: $1,500 / $8,000 = 18.75% utilization ✅

Impact:

✅ Under 10%: Excellent
✅ 10-30%: Good
⚠️ 30-50%: Fair
❌ Over 50%: Hurts your score
❌ Maxed out: Severe damage

Key takeaway: Keep balances low relative to limits, even if you pay in full monthly.

3. Length of Credit History (15%)

What it is: How long you've had credit accounts

Includes:

Age of oldest account
Average age of all accounts
Age of newest account

Impact:

✅ Older accounts = better
❌ Closing old accounts = shorter history
⚠️ Opening many new accounts = lowers average age

Key takeaway: Keep old accounts open (even if unused) to maintain history length.

4. Credit Mix (10%)

What it is: Variety of credit types you manage

Types:

Revolving credit (credit cards)
Installment loans (car, mortgage, personal)
Retail accounts (store credit cards)

Impact:

✅ Mix of different types = slightly better
⚠️ Only credit cards = okay but less optimal
ℹ️ Don't take out loans just for mix

Key takeaway: Natural mix is fine; don't force it.

5. New Credit (10%)

What it is: How often you apply for new credit

Includes:

Hard inquiries (when you apply for credit)
Recently opened accounts

Impact:

✅ Occasional applications = fine
❌ Many applications in short time = red flag
ℹ️ Hard inquiries stay on report for 2 years, affect score for 1 year

Key takeaway: Be selective about credit applications. Rate shopping for mortgage/auto (within 45 days) counts as one inquiry.

💡 Exercise 5.2: Analyze Your Credit Factors

Based on your credit report, evaluate each factor:

1. Payment History (35%)

Number of late payments in last 2 years: _______

Any collections or public records? ☐ Yes ☐ No

My grade: ☐ Excellent ☐ Good ☐ Needs work ☐ Poor

What I need to do:

2. Credit Utilization (30%)

Account	Balance	Limit	Utilization %
_________	$_____	$_____	_____%
_________	$_____	$_____	_____%
_________	$_____	$_____	_____%

Total: $_____ / $_____ = _____%

My grade: ☐ Excellent (<10%) ☐ Good (10-30%) ☐ Fair (30-50%) ☐ Poor (>50%)

What I need to do:

3. Length of Credit History (15%)

Age of oldest account: _______ years

Average age of accounts: _______ years

My grade: ☐ Good (5+ years) ☐ Fair (2-5 years) ☐ Building (0-2 years)

4. Credit Mix (10%)

Types of credit I have: ☐ Credit cards ☐ Auto loan ☐ Mortgage ☐ Student loans ☐ Personal loan ☐ Other: __________

My grade: ☐ Good mix ☐ Limited mix ☐ Just starting

5. New Credit (10%)

Hard inquiries in last 12 months: _______

Accounts opened in last 12 months: _______

My grade: ☐ Good (0-2) ☐ Moderate (3-4) ☐ Too many (5+)

Part 3: Building Credit From Scratch

Starting with no credit history? Here's your roadmap.

Step 1: Become an Authorized User

What it is: Someone adds you to their credit card as an authorized user

Benefits:

Their payment history appears on your report
Helps establish credit history
No responsibility for payments
Can be removed anytime

Requirements:

Find someone with good credit who trusts you
Confirm their card issuer reports authorized users
Ideally, an account with low utilization and perfect payment history

Best for: Young adults being added to parent's card

Step 2: Get a Secured Credit Card

What it is: Credit card requiring a security deposit (usually $200-500)

How it works:

You deposit money (e.g., $300)
That becomes your credit limit
Use it like a regular card
Pay on time
After 6-12 months, upgrade to unsecured card and get deposit back

Recommended cards:

Discover it® Secured
Capital One Platinum Secured
Citi® Secured Mastercard®

Tips:

Choose one that reports to all three bureaus
Look for no annual fee
Pick one that offers upgrade path
Use it for small purchases and pay in full monthly

Step 3: Credit Builder Loan

What it is: Small loan specifically designed to build credit

How it works:

Borrow small amount (e.g., $500)
Money is held in savings account
Make monthly payments for 6-12 months
Payments are reported to credit bureaus
Get the money (plus interest) when done

Where to get them:

Credit unions
Community banks
Online lenders (Self, Credit Strong)

Cost: Minimal interest, often $50-100 total

Best for: People with no credit who want to establish history quickly

Step 4: Report Alternative Payments

What it is: Get credit for payments you're already making

Services that help:

Experian Boost: Adds utility and phone bill payments
Rental Kharma: Reports rent payments
eCredable: Reports rent, utilities, and more

Free or low-cost, worth considering if starting from zero.

💡 Exercise 5.3: Your Credit Building Plan

If you have limited or no credit, create your action plan:

My starting point:

Current credit score (if known): _______

Number of credit accounts: _______

My credit building steps:

Step 1: ☐ Become authorized user

Who can add me? _______________
When will I ask? _______________

Step 2: ☐ Get secured credit card

Which one? _______________
Deposit needed: $_______
Application date: _______________

Step 3: ☐ Consider credit builder loan

Where will I apply? _______________

Step 4: ☐ Use Experian Boost or similar

Goal: My target credit score in 6 months: _______

My target credit score in 12 months: _______

Part 4: Improving a Damaged Credit Score

Already have credit but your score needs work? Here's how to repair it.

Quick Wins (30-60 days)

1. Pay down high balances

Focus on cards over 30% utilization
Even small payments help
Utilization updates monthly when statement closes

Example:

Card with $2,000 balance / $3,000 limit = 67% (bad)
Pay $1,000 → $1,000 / $3,000 = 33% (better)
Pay $1,500 → $500 / $3,000 = 17% (good!)

2. Ask for credit limit increases

Call your credit card companies
Ask for higher limits (don't increase spending!)
Lower utilization without paying down debt

Example:

Current: $2,000 balance / $3,000 limit = 67%
After increase: $2,000 / $5,000 = 40%

Only do this if you won't be tempted to spend more!

3. Become an authorized user on a healthy account

Their good history can boost your score quickly
Ensure they have low utilization and no late payments

4. Dispute errors on credit report

Wrong account information
Payments incorrectly marked late
Accounts that aren't yours
Outdated information

File disputes at: Equifax.com, Experian.com, TransUnion.com

Medium-Term Strategies (3-12 months)

5. Set up payment reminders or autopay

One late payment can drop score 100+ points
Prevention is crucial
Even minimum payment protects your score

6. Pay all bills on time going forward

Payment history improves as on-time payments accumulate
Each month of on-time payments helps

7. Don't close old accounts

Closing accounts reduces available credit (raises utilization)
Shortens credit history
Keep them open even if unused

8. Pay down debt strategically

Focus on cards closest to their limits first
Brings utilization down fastest

Long-Term Strategies (1-2+ years)

9. Wait out negative marks

Late payments: Fall off after 7 years
Collections: Fall off after 7 years
Bankruptcies: Chapter 7 (10 years), Chapter 13 (7 years)
Hard inquiries: Fall off after 2 years

10. Build positive history

Keep accounts in good standing
Years of on-time payments gradually outweigh past mistakes

11. Consider "goodwill" letters

Write to creditors about isolated late payments
Explain circumstances
Request removal as goodwill gesture
No guarantee, but worth trying

💡 Exercise 5.4: Credit Repair Action Plan

If your credit needs improvement, prioritize your actions:

Immediate actions (this week):

☐ Check credit report for errors

Errors found: _______________________________________________

☐ Dispute any errors

☐ Set up autopay for all credit accounts (minimum payments)

☐ Calculate current utilization: _______%

☐ Determine which balances to pay down first:

This month:

☐ Pay extra $_______ toward highest utilization card

☐ Call and request credit limit increases on:

☐ Set up payment reminders for all bills

Next 3-6 months:

☐ Continue paying all bills on time

☐ Reduce total utilization to under 30%

☐ Add positive account history (new card if beneficial)

☐ Check credit score monthly to track progress

Expected score improvement: Current _____ → Goal _____

Part 5: Credit Score Myths Debunked

Let's clear up common misconceptions.

Myth #1: "Checking my credit hurts my score"

Reality: Checking your own credit is a "soft inquiry" and does NOT hurt your score

What DOES hurt: Hard inquiries when you apply for credit

Takeaway: Check your credit regularly! It's healthy financial maintenance.

Myth #2: "Carrying a small balance helps my score"

Reality: You do NOT need to carry a balance and pay interest to build credit

Truth: Pay in full every month; credit card companies report your usage either way

Takeaway: Paying in full saves you money without hurting your score.

Myth #3: "Closing paid-off credit cards helps my score"

Reality: Closing cards usually HURTS your score by:

Reducing available credit (raising utilization)
Shortening credit history (if it's an old card)

Exception: High annual fee cards you don't use

Takeaway: Keep old cards open, even if you rarely use them.

Myth #4: "Income affects my credit score"

Reality: Credit scores don't consider income, employment, or assets

What matters: How you manage credit, not how much you make

Takeaway: Someone making $30K can have better credit than someone making $300K.

Myth #5: "You only have one credit score"

Reality: You have dozens of credit scores

Different scoring models (FICO, VantageScore)
Different versions (FICO 8, FICO 9, etc.)
Different bureaus have different data

Takeaway: Don't obsess over the exact number; focus on good credit habits.

Myth #6: "Paying off collections removes them from your report"

Reality: Paid collections stay on your report for 7 years

Modern truth: Newer scoring models ignore paid collections, but older models don't

Strategy: Some collections can be "pay for delete" – negotiate removal in exchange for payment

Takeaway: Paying collections helps, but won't immediately erase them.

Myth #7: "My credit score will never recover from ______"

Reality: Credit scores are dynamic and can always improve

Truth:

Bankruptcy can recover to 700+ in 2-4 years with good habits
Foreclosure can recover in 3-5 years
Late payments matter less over time

Takeaway: No credit mistake is permanent. Time and good behavior heal credit.

💡 Exercise 5.5: Myth Check

Which myths did you believe before this module?

☐ Checking my credit hurts my score

☐ I need to carry a balance

☐ I should close paid-off cards

☐ Income matters for credit score

☐ I only have one score

☐ Collections must be paid to disappear

☐ Bad credit is permanent

Now I know: _______________________________________________

Part 6: Credit Cards and Your Score

Using credit cards smartly is key to a healthy score.

The Perfect Credit Card Strategy

Step 1: Get the right cards

2-3 credit cards is ideal for most people
At least one with no annual fee as your "keeper" card
Choose cards with rewards you'll actually use

Step 2: Use them regularly but minimally

Make 1-2 small purchases per month per card
Keeps accounts active
Examples: Netflix subscription, gas, groceries

Step 3: Pay in full every month

Set up autopay for full balance
Never pay a cent in interest

Step 4: Keep utilization low

Aim for under 10% on each card when statement closes
Pay early if needed (before statement date)

Step 5: Never miss a payment

Set up autopay for at least minimum
This is non-negotiable

Statement Date vs. Due Date (Important!)

Statement Date: When your balance is reported to credit bureaus

Due Date: When payment is due (usually 21-25 days after statement date)

Key insight: The balance on your statement date is what affects utilization

Strategy:

If your statement date is the 15th and due date is the 10th
Pay down balance before the 15th to show lower utilization
Even if you have until the 10th of next month to pay

💡 Exercise 5.6: Optimize Your Credit Card Usage

For each credit card you have:

Card 1: _______________

Credit limit: $_______

Statement closing date: _______

Payment due date: _______

My strategy:

Monthly purchases I'll put on this card: _______________
Amount: $_______ (keep under 10% of limit = $_______)
When I'll pay it: ☐ In full on due date ☐ Before statement date

Card 2: _______________

[Repeat same questions]

Overall credit card plan:

Total credit available: $_______

Maximum I should use (10%): $_______

Autopay setup: ☐ All cards set to autopay at least minimum ☐ Alerts set up to remind me to pay early if needed

Part 7: Protecting Your Credit

Your credit score is valuable. Protect it from fraud and mistakes.

Identity Theft Protection

Prevention:

Use strong, unique passwords
Enable two-factor authentication
Don't share personal info unnecessarily
Shred financial documents
Monitor accounts regularly
Use secure networks (avoid public Wi-Fi for financial transactions)

Credit freeze (free and effective):

Prevents new accounts from being opened in your name
You can freeze/unfreeze anytime
Do at all three bureaus: Equifax, Experian, TransUnion
Must unfreeze temporarily when applying for credit

Fraud alerts (free):

Requires creditors to verify your identity before opening accounts
Lasts 1 year (renewable)
Easier than freeze if you apply for credit frequently

If You're a Victim of Identity Theft

Immediate steps:

Place fraud alert on all three credit bureaus
Review credit reports for fraudulent accounts
Report to FTC at IdentityTheft.gov
File police report
Contact creditors where fraud occurred
Close fraudulent accounts
Change all passwords
Monitor closely for next 12 months

Don't panic: You have rights, and you're not liable for fraudulent charges if reported promptly.

💡 Exercise 5.7: Credit Protection Plan

My credit protection checklist:

☐ Set up credit monitoring (Credit Karma, bank app, etc.)

☐ Check credit reports annually (set calendar reminders)

☐ Consider credit freeze (especially if not applying for credit soon)

☐ Set up fraud alerts on all financial accounts

☐ Use password manager for strong, unique passwords

☐ Enable two-factor authentication on financial accounts

☐ Shred documents with personal info

☐ Know where my Social Security card is (secure location, not wallet)

☐ Save important numbers:

Credit bureaus: Equifax (800-685-1111), Experian (888-397-3742), TransUnion (800-916-8800)
FTC Identity Theft Hotline: 877-438-4338

Common Mistakes to Avoid

❌ Ignoring your credit report
→ Check at least annually; errors are common
❌ Closing old accounts
→ Usually hurts more than helps
❌ Maxing out credit cards
→ Even if you pay in full, high utilization hurts
❌ Applying for multiple cards at once
→ Looks desperate; lowers score
❌ Ignoring bills in collections
→ Won't go away; get worse; negotiate or pay
❌ Only paying minimums
→ Won't hurt score but costs you thousands in interest
❌ Co-signing loans
→ You're equally responsible; impacts your credit if they don't pay

Key Takeaways

✅ Payment history (35%) is the biggest factor – never miss payments
✅ Keep credit utilization under 30%, ideally under 10%
✅ Length of credit history matters – keep old accounts open
✅ Check your credit regularly (it doesn't hurt your score)
✅ Building credit takes time, but improvement is always possible
✅ No credit mistake is permanent – good behavior rebuilds credit
✅ Protect your credit from fraud with monitoring and freezes
✅ Pay credit cards in full; you don't need to carry a balance to build credit

Quick Wins You Can Do Right Now

Check your credit score using Credit Karma or your credit card's free service
Set up autopay for at least the minimum on all credit accounts
Request your free credit report at AnnualCreditReport.com
Calculate your credit utilization – if over 30%, make extra payment
Set a calendar reminder to check credit every 4 months

Before You Move to Module 6

Make sure you've completed:

✓ Exercise 5.1: Checked your credit report and score
✓ Exercise 5.2: Analyzed your credit factors
✓ Exercise 5.3 OR 5.4: Created building or repair plan (whichever applies)
✓ Exercise 5.6: Optimized credit card usage
✓ Exercise 5.7: Set up credit protection

Reflection Questions

What surprised you most about how credit scores work?

What's one myth you believed that turned out to be false?

What's your #1 action to improve or maintain your credit?

How do you feel about your credit situation now?

Looking Ahead

In Module 6, we'll focus on building your emergency fund – your financial safety net. Having savings prevents you from going into debt when life throws curveballs, which in turn protects the credit you're building!

See you in the next module!

Additional Resources

Free Credit Monitoring:

Credit Karma (free VantageScore)
Credit Sesame (free)
Experian (free FICO score with account)
Many credit card companies offer free scores

Official Credit Report:

AnnualCreditReport.com (the ONLY free official site)

Credit Dispute:

Equifax: Equifax.com/personal/credit-report-services/
Experian: Experian.com/disputes/
TransUnion: TransUnion.com/credit-disputes

Identity Theft Help:

IdentityTheft.gov (FTC's official resource)
USA.gov/identity-theft

Further Reading:

"Your Score" by Anthony Davenport
"Credit Repair Kit For Dummies" by Steve Bucci
MyFICO forums (for specific credit questions)

"A good reputation is more valuable than money." – Publilius Syrus

"Your credit score is a reflection of your financial habits, not your worth as a person." – Unknown

Module 5: Building Your Credit

Understanding and Improving Your Credit Score

Introduction

Welcome to Module 5! Let's talk about your credit score – a three-digit number that has outsized influence on your financial life.

Good credit can save you tens of thousands of dollars over your lifetime. Bad credit can cost you opportunities, higher interest rates, and even job prospects in some fields.

The good news? Credit is something you can build and improve, regardless of where you're starting from.

In this module, we'll cover:

What credit scores are and why they matter
How credit scores are calculated
The difference between credit reports and credit scores
Practical steps to build credit from scratch
How to improve a damaged credit score
Common credit myths debunked
Protecting your credit from fraud

Think of your credit score as your financial reputation. Let's make sure it's a good one!

Part 1: What Is a Credit Score?

The Basics

Credit Score: A three-digit number (300-850) that represents how reliable you are at repaying borrowed money

Think of it as: Your financial report card or trustworthiness score

Who uses it:

Lenders (for loans and credit cards)
Landlords (for rental applications)
Insurance companies (for premium rates)
Some employers (for job screening)
Utility companies (to determine if you need a deposit)

Your credit score affects:

Whether you're approved for credit
The interest rates you're offered
How much you can borrow
Whether you need to pay deposits
Sometimes, even job opportunities

Credit Score Ranges

Score Range	Rating	What It Means
800-850	Exceptional	Best rates and terms; easy approval
740-799	Very Good	Great rates; easy approval
670-739	Good	Decent rates; approved for most credit
580-669	Fair	Higher rates; limited options
300-579	Poor	Highest rates; difficult to get approved

The sweet spot: 740+ gets you the best rates and terms on most loans

Fun fact: Only about 23% of Americans have scores over 800

Credit Scores vs. Credit Reports

Credit Report:

Detailed history of your credit accounts
Lists all your loans, credit cards, payment history
Includes personal info, employment, public records
Like your financial biography

Credit Score:

Single number calculated from your credit report
Different scoring models (FICO, VantageScore)
Like a grade calculated from your biography

You have three credit reports (one from each bureau: Equifax, Experian, TransUnion)

You have multiple credit scores (different lenders use different models)

💡 Exercise 5.1: Check Your Credit

Everyone is entitled to free credit reports once per year from each bureau.

Get your free reports at: AnnualCreditReport.com (the ONLY official site)

Strategy: Check one bureau every 4 months to monitor throughout the year

January: Equifax
May: Experian
September: TransUnion

Action items today:

☐ Visit AnnualCreditReport.com

☐ Request your report from one bureau

☐ Review it carefully for:

Accounts you don't recognize (fraud)
Incorrect balances or limits
Wrong personal information
Accounts wrongly marked as late

☐ Set calendar reminders to check other bureaus in 4 months

For checking your actual credit score (the number):

Free options:

Credit Karma (free, shows VantageScore)
Your credit card company (many offer free FICO scores)
Experian (free FICO score with account)

My current credit score: _______

Date checked: _______________

Credit bureau/source: _______________

Part 2: How Credit Scores Are Calculated

Understanding what affects your score helps you improve it. Here's the breakdown:

FICO Score Breakdown (Most Common Model)

1. Payment History (35%) – Most Important

What it is: Do you pay your bills on time?

Includes:

Credit card payments
Loan payments (auto, mortgage, student)
Any payment marked 30+ days late

Impact:

✅ Paying on time = biggest positive factor
❌ Late payments = biggest score killer
❌ Collections, bankruptcies = severe damage

Key takeaway: ALWAYS pay at least the minimum on time. Set up autopay if needed.

2. Credit Utilization (30%) – Very Important

What it is: How much of your available credit are you using?

Calculation: (Total balances ÷ Total credit limits) × 100

Example:

Credit card A: $1,000 balance / $5,000 limit
Credit card B: $500 balance / $3,000 limit
Total: $1,500 / $8,000 = 18.75% utilization ✅

Impact:

✅ Under 10%: Excellent
✅ 10-30%: Good
⚠️ 30-50%: Fair
❌ Over 50%: Hurts your score
❌ Maxed out: Severe damage

Key takeaway: Keep balances low relative to limits, even if you pay in full monthly.

3. Length of Credit History (15%)

What it is: How long you've had credit accounts

Includes:

Age of oldest account
Average age of all accounts
Age of newest account

Impact:

✅ Older accounts = better
❌ Closing old accounts = shorter history
⚠️ Opening many new accounts = lowers average age

Key takeaway: Keep old accounts open (even if unused) to maintain history length.

4. Credit Mix (10%)

What it is: Variety of credit types you manage

Types:

Revolving credit (credit cards)
Installment loans (car, mortgage, personal)
Retail accounts (store credit cards)

Impact:

✅ Mix of different types = slightly better
⚠️ Only credit cards = okay but less optimal
ℹ️ Don't take out loans just for mix

Key takeaway: Natural mix is fine; don't force it.

5. New Credit (10%)

What it is: How often you apply for new credit

Includes:

Hard inquiries (when you apply for credit)
Recently opened accounts

Impact:

✅ Occasional applications = fine
❌ Many applications in short time = red flag
ℹ️ Hard inquiries stay on report for 2 years, affect score for 1 year

Key takeaway: Be selective about credit applications. Rate shopping for mortgage/auto (within 45 days) counts as one inquiry.

💡 Exercise 5.2: Analyze Your Credit Factors

Based on your credit report, evaluate each factor:

1. Payment History (35%)

Number of late payments in last 2 years: _______

Any collections or public records? ☐ Yes ☐ No

My grade: ☐ Excellent ☐ Good ☐ Needs work ☐ Poor

What I need to do:

2. Credit Utilization (30%)

Account	Balance	Limit	Utilization %
_________	$_____	$_____	_____%
_________	$_____	$_____	_____%
_________	$_____	$_____	_____%

Total: $_____ / $_____ = _____%

My grade: ☐ Excellent (<10%) ☐ Good (10-30%) ☐ Fair (30-50%) ☐ Poor (>50%)

What I need to do:

3. Length of Credit History (15%)

Age of oldest account: _______ years

Average age of accounts: _______ years

My grade: ☐ Good (5+ years) ☐ Fair (2-5 years) ☐ Building (0-2 years)

4. Credit Mix (10%)

Types of credit I have: ☐ Credit cards ☐ Auto loan ☐ Mortgage ☐ Student loans ☐ Personal loan ☐ Other: __________

My grade: ☐ Good mix ☐ Limited mix ☐ Just starting

5. New Credit (10%)

Hard inquiries in last 12 months: _______

Accounts opened in last 12 months: _______

My grade: ☐ Good (0-2) ☐ Moderate (3-4) ☐ Too many (5+)

Part 3: Building Credit From Scratch

Starting with no credit history? Here's your roadmap.

Step 1: Become an Authorized User

What it is: Someone adds you to their credit card as an authorized user

Benefits:

Their payment history appears on your report
Helps establish credit history
No responsibility for payments
Can be removed anytime

Requirements:

Find someone with good credit who trusts you
Confirm their card issuer reports authorized users
Ideally, an account with low utilization and perfect payment history

Best for: Young adults being added to parent's card

Step 2: Get a Secured Credit Card

What it is: Credit card requiring a security deposit (usually $200-500)

How it works:

You deposit money (e.g., $300)
That becomes your credit limit
Use it like a regular card
Pay on time
After 6-12 months, upgrade to unsecured card and get deposit back

Recommended cards:

Discover it® Secured
Capital One Platinum Secured
Citi® Secured Mastercard®

Tips:

Choose one that reports to all three bureaus
Look for no annual fee
Pick one that offers upgrade path
Use it for small purchases and pay in full monthly

Step 3: Credit Builder Loan

What it is: Small loan specifically designed to build credit

How it works:

Borrow small amount (e.g., $500)
Money is held in savings account
Make monthly payments for 6-12 months
Payments are reported to credit bureaus
Get the money (plus interest) when done

Where to get them:

Credit unions
Community banks
Online lenders (Self, Credit Strong)

Cost: Minimal interest, often $50-100 total

Best for: People with no credit who want to establish history quickly

Step 4: Report Alternative Payments

What it is: Get credit for payments you're already making

Services that help:

Experian Boost: Adds utility and phone bill payments
Rental Kharma: Reports rent payments
eCredable: Reports rent, utilities, and more

Free or low-cost, worth considering if starting from zero.

💡 Exercise 5.3: Your Credit Building Plan

If you have limited or no credit, create your action plan:

My starting point:

Current credit score (if known): _______

Number of credit accounts: _______

My credit building steps:

Step 1: ☐ Become authorized user

Who can add me? _______________
When will I ask? _______________

Step 2: ☐ Get secured credit card

Which one? _______________
Deposit needed: $_______
Application date: _______________

Step 3: ☐ Consider credit builder loan

Where will I apply? _______________

Step 4: ☐ Use Experian Boost or similar

Goal: My target credit score in 6 months: _______

My target credit score in 12 months: _______

Part 4: Improving a Damaged Credit Score

Already have credit but your score needs work? Here's how to repair it.

Quick Wins (30-60 days)

1. Pay down high balances

Focus on cards over 30% utilization
Even small payments help
Utilization updates monthly when statement closes

Example:

Card with $2,000 balance / $3,000 limit = 67% (bad)
Pay $1,000 → $1,000 / $3,000 = 33% (better)
Pay $1,500 → $500 / $3,000 = 17% (good!)

2. Ask for credit limit increases

Call your credit card companies
Ask for higher limits (don't increase spending!)
Lower utilization without paying down debt

Example:

Current: $2,000 balance / $3,000 limit = 67%
After increase: $2,000 / $5,000 = 40%

Only do this if you won't be tempted to spend more!

3. Become an authorized user on a healthy account

Their good history can boost your score quickly
Ensure they have low utilization and no late payments

4. Dispute errors on credit report

Wrong account information
Payments incorrectly marked late
Accounts that aren't yours
Outdated information

File disputes at: Equifax.com, Experian.com, TransUnion.com

Medium-Term Strategies (3-12 months)

5. Set up payment reminders or autopay

One late payment can drop score 100+ points
Prevention is crucial
Even minimum payment protects your score

6. Pay all bills on time going forward

Payment history improves as on-time payments accumulate
Each month of on-time payments helps

7. Don't close old accounts

Closing accounts reduces available credit (raises utilization)
Shortens credit history
Keep them open even if unused

8. Pay down debt strategically

Focus on cards closest to their limits first
Brings utilization down fastest

Long-Term Strategies (1-2+ years)

9. Wait out negative marks

Late payments: Fall off after 7 years
Collections: Fall off after 7 years
Bankruptcies: Chapter 7 (10 years), Chapter 13 (7 years)
Hard inquiries: Fall off after 2 years

10. Build positive history

Keep accounts in good standing
Years of on-time payments gradually outweigh past mistakes

11. Consider "goodwill" letters

Write to creditors about isolated late payments
Explain circumstances
Request removal as goodwill gesture
No guarantee, but worth trying

💡 Exercise 5.4: Credit Repair Action Plan

If your credit needs improvement, prioritize your actions:

Immediate actions (this week):

☐ Check credit report for errors

Errors found: _______________________________________________

☐ Dispute any errors

☐ Set up autopay for all credit accounts (minimum payments)

☐ Calculate current utilization: _______%

☐ Determine which balances to pay down first:

This month:

☐ Pay extra $_______ toward highest utilization card

☐ Call and request credit limit increases on:

☐ Set up payment reminders for all bills

Next 3-6 months:

☐ Continue paying all bills on time

☐ Reduce total utilization to under 30%

☐ Add positive account history (new card if beneficial)

☐ Check credit score monthly to track progress

Expected score improvement: Current _____ → Goal _____

Part 5: Credit Score Myths Debunked

Let's clear up common misconceptions.

Myth #1: "Checking my credit hurts my score"

Reality: Checking your own credit is a "soft inquiry" and does NOT hurt your score

What DOES hurt: Hard inquiries when you apply for credit

Takeaway: Check your credit regularly! It's healthy financial maintenance.

Myth #2: "Carrying a small balance helps my score"

Reality: You do NOT need to carry a balance and pay interest to build credit

Truth: Pay in full every month; credit card companies report your usage either way

Takeaway: Paying in full saves you money without hurting your score.

Myth #3: "Closing paid-off credit cards helps my score"

Reality: Closing cards usually HURTS your score by:

Reducing available credit (raising utilization)
Shortening credit history (if it's an old card)

Exception: High annual fee cards you don't use

Takeaway: Keep old cards open, even if you rarely use them.

Myth #4: "Income affects my credit score"

Reality: Credit scores don't consider income, employment, or assets

What matters: How you manage credit, not how much you make

Takeaway: Someone making $30K can have better credit than someone making $300K.

Myth #5: "You only have one credit score"

Reality: You have dozens of credit scores

Different scoring models (FICO, VantageScore)
Different versions (FICO 8, FICO 9, etc.)
Different bureaus have different data

Takeaway: Don't obsess over the exact number; focus on good credit habits.

Myth #6: "Paying off collections removes them from your report"

Reality: Paid collections stay on your report for 7 years

Modern truth: Newer scoring models ignore paid collections, but older models don't

Strategy: Some collections can be "pay for delete" – negotiate removal in exchange for payment

Takeaway: Paying collections helps, but won't immediately erase them.

Myth #7: "My credit score will never recover from ______"

Reality: Credit scores are dynamic and can always improve

Truth:

Bankruptcy can recover to 700+ in 2-4 years with good habits
Foreclosure can recover in 3-5 years
Late payments matter less over time

Takeaway: No credit mistake is permanent. Time and good behavior heal credit.

💡 Exercise 5.5: Myth Check

Which myths did you believe before this module?

☐ Checking my credit hurts my score

☐ I need to carry a balance

☐ I should close paid-off cards

☐ Income matters for credit score

☐ I only have one score

☐ Collections must be paid to disappear

☐ Bad credit is permanent

Now I know: _______________________________________________

Part 6: Credit Cards and Your Score

Using credit cards smartly is key to a healthy score.

The Perfect Credit Card Strategy

Step 1: Get the right cards

2-3 credit cards is ideal for most people
At least one with no annual fee as your "keeper" card
Choose cards with rewards you'll actually use

Step 2: Use them regularly but minimally

Make 1-2 small purchases per month per card
Keeps accounts active
Examples: Netflix subscription, gas, groceries

Step 3: Pay in full every month

Set up autopay for full balance
Never pay a cent in interest

Step 4: Keep utilization low

Aim for under 10% on each card when statement closes
Pay early if needed (before statement date)

Step 5: Never miss a payment

Set up autopay for at least minimum
This is non-negotiable

Statement Date vs. Due Date (Important!)

Statement Date: When your balance is reported to credit bureaus

Due Date: When payment is due (usually 21-25 days after statement date)

Key insight: The balance on your statement date is what affects utilization

Strategy:

If your statement date is the 15th and due date is the 10th
Pay down balance before the 15th to show lower utilization
Even if you have until the 10th of next month to pay

💡 Exercise 5.6: Optimize Your Credit Card Usage

For each credit card you have:

Card 1: _______________

Credit limit: $_______

Statement closing date: _______

Payment due date: _______

My strategy:

Monthly purchases I'll put on this card: _______________
Amount: $_______ (keep under 10% of limit = $_______)
When I'll pay it: ☐ In full on due date ☐ Before statement date

Card 2: _______________

[Repeat same questions]

Overall credit card plan:

Total credit available: $_______

Maximum I should use (10%): $_______

Autopay setup: ☐ All cards set to autopay at least minimum ☐ Alerts set up to remind me to pay early if needed

Part 7: Protecting Your Credit

Your credit score is valuable. Protect it from fraud and mistakes.

Identity Theft Protection

Prevention:

Use strong, unique passwords
Enable two-factor authentication
Don't share personal info unnecessarily
Shred financial documents
Monitor accounts regularly
Use secure networks (avoid public Wi-Fi for financial transactions)

Credit freeze (free and effective):

Prevents new accounts from being opened in your name
You can freeze/unfreeze anytime
Do at all three bureaus: Equifax, Experian, TransUnion
Must unfreeze temporarily when applying for credit

Fraud alerts (free):

Requires creditors to verify your identity before opening accounts
Lasts 1 year (renewable)
Easier than freeze if you apply for credit frequently

If You're a Victim of Identity Theft

Immediate steps:

Place fraud alert on all three credit bureaus
Review credit reports for fraudulent accounts
Report to FTC at IdentityTheft.gov
File police report
Contact creditors where fraud occurred
Close fraudulent accounts
Change all passwords
Monitor closely for next 12 months

Don't panic: You have rights, and you're not liable for fraudulent charges if reported promptly.

💡 Exercise 5.7: Credit Protection Plan

My credit protection checklist:

☐ Set up credit monitoring (Credit Karma, bank app, etc.)

☐ Check credit reports annually (set calendar reminders)

☐ Consider credit freeze (especially if not applying for credit soon)

☐ Set up fraud alerts on all financial accounts

☐ Use password manager for strong, unique passwords

☐ Enable two-factor authentication on financial accounts

☐ Shred documents with personal info

☐ Know where my Social Security card is (secure location, not wallet)

☐ Save important numbers:

Credit bureaus: Equifax (800-685-1111), Experian (888-397-3742), TransUnion (800-916-8800)
FTC Identity Theft Hotline: 877-438-4338

Common Mistakes to Avoid

❌ Ignoring your credit report
→ Check at least annually; errors are common
❌ Closing old accounts
→ Usually hurts more than helps
❌ Maxing out credit cards
→ Even if you pay in full, high utilization hurts
❌ Applying for multiple cards at once
→ Looks desperate; lowers score
❌ Ignoring bills in collections
→ Won't go away; get worse; negotiate or pay
❌ Only paying minimums
→ Won't hurt score but costs you thousands in interest
❌ Co-signing loans
→ You're equally responsible; impacts your credit if they don't pay

Key Takeaways

✅ Payment history (35%) is the biggest factor – never miss payments
✅ Keep credit utilization under 30%, ideally under 10%
✅ Length of credit history matters – keep old accounts open
✅ Check your credit regularly (it doesn't hurt your score)
✅ Building credit takes time, but improvement is always possible
✅ No credit mistake is permanent – good behavior rebuilds credit
✅ Protect your credit from fraud with monitoring and freezes
✅ Pay credit cards in full; you don't need to carry a balance to build credit

Quick Wins You Can Do Right Now

Check your credit score using Credit Karma or your credit card's free service
Set up autopay for at least the minimum on all credit accounts
Request your free credit report at AnnualCreditReport.com
Calculate your credit utilization – if over 30%, make extra payment
Set a calendar reminder to check credit every 4 months

Before You Move to Module 6

Make sure you've completed:

✓ Exercise 5.1: Checked your credit report and score
✓ Exercise 5.2: Analyzed your credit factors
✓ Exercise 5.3 OR 5.4: Created building or repair plan (whichever applies)
✓ Exercise 5.6: Optimized credit card usage
✓ Exercise 5.7: Set up credit protection

Reflection Questions

What surprised you most about how credit scores work?

What's one myth you believed that turned out to be false?

What's your #1 action to improve or maintain your credit?

How do you feel about your credit situation now?

Looking Ahead

See you in the next module!

Additional Resources

Free Credit Monitoring:

Credit Karma (free VantageScore)
Credit Sesame (free)
Experian (free FICO score with account)
Many credit card companies offer free scores

Official Credit Report:

AnnualCreditReport.com (the ONLY free official site)

Credit Dispute:

Equifax: Equifax.com/personal/credit-report-services/
Experian: Experian.com/disputes/
TransUnion: TransUnion.com/credit-disputes

Identity Theft Help:

IdentityTheft.gov (FTC's official resource)
USA.gov/identity-theft

Further Reading:

"Your Score" by Anthony Davenport
"Credit Repair Kit For Dummies" by Steve Bucci
MyFICO forums (for specific credit questions)

"A good reputation is more valuable than money." – Publilius Syrus

"Your credit score is a reflection of your financial habits, not your worth as a person." – Unknown