When lenders want to appraise your financial situation, the first thing they look at will likely be your credit score. A credit score is a number ranging from 300 to 850 that indicates how likely you are to pay your bills on time. The higher the number, the better your score.
A good credit score is important when you are seeking a loan for major purchases, such as buying a house or a new car. Credit scores are also consulted when you apply for a new credit card, and it may be used as part of an application for an apartment rental. Having strong credit can make a huge difference in whether you are approved for a loan. It can also be a determining factor in the amount of the loan and its interest rates.
If you don’t have a long credit history, or you’ve struggled to make payments in the past, there are still ways to improve your credit score. Sunrise Banks’ Credit Builder Program is designed to help you build your credit score by establishing a strong payment history. Here’s a closer look at how credit scores work, and how Sunrise Banks can help.
What Factors Determine Your Credit Score?
Credit scores are calculated by a formula that takes into account five main factors:
- Payment history: Payment history refers to how often you make payments on time, or if you are likely to miss payments. Payment history accounts for 35% of your score.
- Credit utilization: Credit utilization is how much you owe on loans and credit cards compared to your credit limit. For example, if your credit card has a limit of $1,000 and you have a $100 balance on the card, your credit utilization ratio is 10%. Lower ratios are more favorable. Credit utilization is worth 30% of your credit score.
- Credit history length: Your credit history length, or how long you’ve had established credit, represents 15% of your credit score. Your credit history length factors in the age of your oldest credit account, your newest credit account, and the average age of all your accounts.
- Credit mix: Credit mix refers to the types of accounts you have, such as different loans and credit cards. Lenders like to see a mix of different types of accounts that you have paid off. Credit mix makes up 10% of your score.
- New accounts: When you open a new account or apply for credit, lenders make a “hard inquiry,” which means they pull your credit report to assess your risk as a borrower. The number of new credit accounts you open and the number of hard inquiries into your credit report represent 10% of your credit score.
To learn more about your personal credit score, you can request a free credit report from one of the credit reporting bureaus: Experian, Equifax, or TransUnion.
How Can The Sunrise Banks Credit Builder Program Help Your Credit Score?
Since payment history is the largest factor affecting your credit score, it’s a good idea to get into the habit of paying off your loans and credit cards promptly. The Sunrise Banks Credit Builder program may help develop that habit, while building your savings and boosting your credit score1.
The Sunrise Banks Credit Builder program starts off with a 12- or 18-month loan2, which is deposited into a Certificate of Deposit (CD) account3. You make the monthly principal and interest payments for the duration of the loan (about $50 a month), and once the loan is paid off, the funds are routed to your checking or savings account.4
If you make all your payments on time, your credit score may increase. The Credit Builder program is a great option if you’ve never had credit before, or if you’ve had a poor payment history in the past. In 2019, we opened 651 new credit-builder loans, with an average loan size of $600.
Similarly, Sunrise Banks’ partner, Self, offers small Credit Builder Accounts to help establish credit history. Since its inception, Sunrise’s partnership with Self has helped over 95,000 individuals build their credit.
To learn more about how to build your credit, visit our personal finance knowledge center.
(1) Individual results may vary. Subject to credit approval. Fees may apply. SSN or ITIN required for loan application. Individuals using an ITIN must apply in person, click here to find a location.
(2) A $500 loan for 12 months would have an APR of approximately 21.00% and a monthly payment of approximately $46.89. A $750 loan for 18 months would have an APR of approximately 15.00% and a monthly payment of approximately $47.04.
(3) Certificate of Deposit and loan rates may vary. See a Sunrise Banks Relationship Banker for full details.
(4) If you do not have a Sunrise checking or savings account, we will provide you with a check.