At ALLIANCE, we value your financial health. One big factor of your financial health is your credit score. Let’s walk through what a credit score is, the factors involved, and how ALLIANCE can help you build it. 

What is a credit score?

A credit score is a number that represents how likely you are to repay debt. Scores can range from 300-850. The higher your score the better. Banks and Lenders look at your score to judge if you are financially trustworthy. This score is critical for your financial life and health. It will determine your eligibility for better terms on loans and credit cards. 

What makes up a typical credit score?

Payment History (35%)

  • One of the biggest reasons payment history is so important to banks and lenders is because it shows if you can make payments on time. This can help or hurt your look of trustworthiness to a creditor. It is critical you are making payments on time because your credit score takes into account the missed payment on a deeper level. 

  • For missed payments, credit scores factor in:

    • how late it was

    • how much was owed

    • how recent it was

    • how many late payments there are 

Accounts Owed (30%)

  • Owing money on a credit account doesn't necessarily mean you’ll have a low credit score and/or that creditors will consider you a high-risk borrower. One of the best rules is to keep your credit utilization ratio at or below 30%. What that means is, if your credit line is $1,000, you want your statements to show that you've only borrowed $300 or less each month. Keep in mind, what your statement shows is what is going to be reported to the credit bureaus. So, even if you’re paying your card off in full each month, the statement balance is what credit bureaus will be looking at. 

  • For accounts owed, credit scores factor in:

    • The amount owed on all accounts

    • The amount owed on specific accounts like credit cards or installment loans

    • Credit utilization ratio 

      • how much you currently owe divided by the credit limit

    • How many accounts have a balance

    • Installment loan amount still owed compared to the original balance

Length of Credit History (15%)

  • Your credit history is like a fine wine, the longer you have it, the better it is. People with a short credit history are less likely to be approved for a loan because creditors don't have a long enough history to see good credit responsibility. Just because you don't have a long history doesn't mean you will have a low credit score. You can still have a pretty high score as long as you are maintaining the other factors involved in your score. 

  • The factors that are included in the length of your credit history are

    • How long your accounts have been open, which includes:

      • <>Age of oldest account

      • Age of newest account

      • Average of all accounts

    • How long specific accounts have been open (credit cards, installment loans, etc.)

    • When the account was last used

New Credit (10%)

  • Shopping around for new credit can harm your credit score. Be mindful when looking for new lines of credit. These inquiries (when a lender requests your credit score) can remain on your credit report for up to two years. Researchers have determined that opening new credit lines in a short period represents a risk to the creditor, especially if you don't have a long credit history. 

  • What to keep in mind:

    • Don't rapidly open new accounts

    • Requesting to look at your credit score will not lower your score

      • Requesting to see your score isn't treated as an inquiry for a new credit line.

    • Multiple inquiries from auto or mortgage lenders generally don't affect your credit score a lot. 

Credit Mix (10%)

  • Your credit mix is typically made up of your credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. Having multiple lines of credit is important because it shows the creditor financial responsibility if you are handling the accounts well. 

  • Things to consider with your credit mix:

    • It looks good to creditors to have a mix of accounts

    • Closing an account will not make the credit history disappear 

How do you establish new credit? 

Get a Secured Credit Card

  • For someone who doesn't have any credit and is looking to build it, or someone looking to fix their credit, a secured credit card is a great option. With a secured credit card, an initial deposit is required that is typically equal to your credit limit each month. For example, if your initial deposit is $200, your credit limit is also likely to be $200 each month. Some institutions, including ALLIANCE will hold 120% of funds on Secured Credit Cards. Doing so is low risk for the creditor because, if you miss a payment, they can take from your initial deposit. For example, if a member’s credit limit on the secured card is $500 we would hold $600 (to include the 20%) in their share account. Once you have built up your credit, you can talk to the creditor about possibly switching to an unsecured card. If you have not missed any payments, you’ll receive your initial deposit back when closing the account. Check out what ALLIANCE has to offer with the  Visa Secured Credit Card.

Get a Secured Loan

  • Secured Loans are another way to establish new credit or improve your current credit score. A secured loan is a loan backed by collateral, like your home or car. This incentivizes people to repay their loan and is typically low risk for the creditor. 

How do you improve your credit score?

When looking at the factors that make up a typical credit score, there are a few that weigh pretty heavy compared to the others. Focusing on these areas will help you improve your score. But remember, improving your credit score is a marathon, not a sprint. 

Evaluate where you currently are.

  • It’s imperative you know your current status before taking the steps to improve your score. A good website to see where you currently stand is Credit Karma. Once you create your free account, you'll want to hover over the ‘My Overview’ tab in the top left corner and click on ‘Score Details’. From there, you will be able to pinpoint the factors that are lowering your score so you can start working on improving them.

Make sure the reports are accurate. 

  • There are three major credit bureaus: Experian, Equifax, and TransUnion. A study done in 2012 by the Federal Trade Commission found that 1 in 5 people had errors on at least one of their credit reports. Double-check to make sure all your information is accurate at If there is inaccurate information, dispute it!

Pay your bills on time and keep balances on credit cards and other revolving debt low.

  • Paying on time makes up 35% of your credit score and balances owed makes up 30%. Together, that's a whopping 65% of your score! As mentioned above, do your best to never miss a payment and try to keep your utilization ratio below 30% each month.

Apply for Credit Cards only as needed.

  • Credit Bureaus can see inquiries made, and the more you have on your history, the riskier you look. These typically drop off your credit report in a year or two. So, if you’re needing a new credit line, check to make sure your inquiries are low before doing so.

Dealing with your credit can be an intimidating task. At ALLIANCE, we care about you, we are here to help, and we want you to reach your financial goals. If it’s important to you, then it’s important to us, too.