Building Better Credit 

Taking Steps to Improve Your Credit 

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Building Better Credit 

Good credit is an increasingly important part of a consumer’s financial 

power, but good credit is no accident. It’s the result of discipline and 

planning. Start today, and your good credit will pay off with better loan 

terms, lower interest rates, and greater financial opportunities in the future. 

Recognize the Value of 

Good Credit 

A good credit history increases the confidence of 

lenders and creditors when they loan money to you. 

When they see that you have paid back your loans as 

agreed, lenders are more likely to extend credit again. 

With good credit, you can borrow for major expenses, 

such as a home, car, or education, and you can borrow 

money at a lower cost — ultimately saving you money. 

Understand Your Credit Score 

When you apply for credit, one of the first things a 

lender will do is request a copy of your credit report 

from a credit reporting agency. Your credit report will 

display a history of your credit activities, along with your 

credit score. Your credit score is computer generated 

using a formula that provides a snapshot of your 

creditworthiness, predicting how likely you are to repay 

your debts. There are many formulas utilized today, 

but the most commonly known one is from the 

Fair Isaac Corporation (FICO). According to their 

Web site (www.myfico.com), if your credit score is 

determined using their formula, it will be calculated 

using the following factors: 

 Payment History (35 percent) – Have your payments been made on time? Have you ever filed for 

bankruptcy or lost your home to foreclosure? How 

frequently have your bills gone to collections? 

 Amounts Owed (30 percent) – How much do you 

owe to creditors and lenders? 

 Length of Credit History (15 percent) – How long 

have you had credit? 

 New Credit (10 percent) – Does your credit report 

indicate that you have made numerous applications 

for new credit and are potentially taking on too much 

debt? Did you recently receive multiple lines of credit 

in a short period of time? 

 Types of Credit Used (10 percent) – Does your 

credit report show a “healthy” mix of credit types 

in use? 

Establish and Maintain Your 

Good Credit 

Learning how to use credit wisely can put you one step 

closer to purchasing a home. The credit decisions you 

make today will impact your financial future. But, before 

you can begin to use credit wisely, you will need to 

establish your credit. Here are a few tips to help 

get you started: 

 Open checking and savings accounts. When you 

open a checking and savings account, try to always 

exceed the minimum balance, never bounce checks, 

and make regular deposits. 

 Use credit cards carefully. Credit cards are convenient and easy to use, but using them recklessly 

can hurt your credit. If you allow your credit cards to 

reach high, unpaid balances, or if you only pay the 

minimum amount due, they can cost you hundreds 

or thousands of dollars in interest alone. On the 

other hand, if you pay them in full or on time each 

month, credits cards can help you build excellent 

credit and reap the benefits that follow. 

 Establish credit independently. It’s important for 

both partners in a marriage or relationship to establish their own credit to help achieve financial goals 

and to protect against unforeseen circumstances like 

death, divorce, or other life changes. Partners should 

regularly discuss household and personal expenditures to ensure that neither has an excessive amount 

of charges that cannot be repaid. 

 Honor your promise to pay. It is essential that you 

honor your promise to repay loans or credit cards on 

time and in the amounts scheduled. Contact your 

lender or creditor immediately if you are experiencing 

difficulty making payments. 
 Know what’s in your credit report. Check 

your credit report at least once each year from 

www.annualcreditreport.com to ensure its accuracy. 

If you are planning a large purchase, check your 

credit report prior to the purchase to avoid 

any surprises and to allow you plenty of time to 

correct any errors. 

Restore Your Credit 

There may have been a time in your history when 

you experienced a financial setback resulting in credit 

problems. If so, there are ways to restore your credit to 

a more positive position: 

 Contact former creditors with whom you’ve 

had a good payment record. They may be 

willing to extend you credit to help you re-establish 

your credit. 

 Carefully review any credit card offers you 

receive. You do not want to acquire too many; 

usually two credit cards will suffice. 

 Avoid disreputable credit repair companies 

at all costs. Those that promise a quick, easy 

fix could take your money and get you into more 

debt. Instead, contact a reputable nonprofit credit 

counseling organization. 

Take Action to Start Improving 

Your Credit Today 

By understanding credit and credit evaluation systems, 

you’ll be on the right path to realizing your goals and 

making good decisions. Start now, and your good 

credit will give you a financial advantage with better 

loan terms, lower interest rates, and greater financial 

opportunities down the road, especially when you 

want to buy a home. 

Remember that no credit score lasts forever. It changes 

over time, so you can improve it over time. Every time 

you make an on-time payment, lower a balance, or pay 

off debt, you add another entry to your credit report. 

Managing your credit well will ultimately result in a 

higher credit score. 

For More Information 

 The Freddie Mac CreditSmart® curriculum is a 

consumer guide to better credit, money management, and responsible homeownership. Visit 

FreddieMac.com/creditsmart to download 

consumer resources, available in five languages. 

 To find a HUD-approved housing counseling agency 

near you, visit www.hud.gov or call 800-569-4287. 

 “About Homeownership” is the Freddie Mac online 

guide to the homebuying process and successful 

homeownership. Visit us at FreddieMac.com/ 

homeownership. 

 Avoid scam artists! Learn about common scams in 

your area, and get advice before you enter into your 

next loan agreement. Read more about common 

fraud schemes at FreddieMac.com/avoidfraud. 

Source 

Content adapted from Freddie Mac’s award-winning CreditSmart, a multilingual financial education curriculum designed to help 

consumers build and maintain better credit, make sound financial decisions, and understand the steps to sustainable homeownership.
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Publication Number 823 n © Freddie Mac, December 2016