Credit-wise Checklist

Consider your creditworthiness. To help determine if you’re a good credit risk, lenders evaluate the information listed in your credit report, including your bill payment history, total outstanding debt and available credit. They also look at how long you’ve worked for the same employer and how long you’ve lived at the same address. Besides that, they consider information not in your report, but that you supply on your credit application, including your income, assets, and savings account balances.

Some lenders use risk scores to help them determine your creditworthiness. These are numerical summaries of the information in your credit report, which are developed by credit reporting agencies, independent companies, or lenders. Each lender uses these risk scores differently, so your credit application might be approved by one lender, but rejected by another, based on the same credit report information.

Pay your bills on time. You’ve heard it before, but it’s worth repeating. You've got to pay your bills on time to build and maintain a solid credit history. Late payments become a part of your credit record and make it harder to get credit in the future. Plus, the lender may take legal action against you, and if you default, may sell the collateral that you put up as security for the loan. What if you already have some strikes against you? Fortunately, lenders will take a pattern of recent on-time payments into account. So it’s never too late to start repairing a damaged credit history.

Pare down your plastic. Make a list of all your credit cards and total your available credit limits. Even if you think you’d never spend up to this amount, you could if you wanted to. And that possibility may not only lead to more debt than you can handle, it may be enough for lenders to deny you additional credit when you need it.

So cancel the credit cards you don’t need, and ask card issuers to decrease unnecessarily high limits on the ones you keep. Make your cancellation requests in writing, and ask card issuers to report cancellations to credit bureaus. After one or two months, order a copy of your credit reports from all three of the major credit bureaus to make sure your cancellation requests were honored.

Consider an alternative to credit cards. If you’re trying to limit your debt, but still want the convenience of a credit card, consider using a debit card instead. One type works only at ATM machines and special store terminals, and deducts money from your share draft/checking account immediately. You swipe the card through a machine and enter your PIN number. If your account has insufficient funds, your purchase is either declined, or covered by any overdraft protection you have tied to your account.

Another type is a check card, commonly the Visa or MasterCard brand, which is accepted by most merchants who accept credit cards. Instead of entering a PIN, you sign a receipt as you would with a credit card, and the purchase amount is deducted from your account within one to three days.

One helpful hint: No matter what type of debit card you use, avoid overdrawing your account by recording transactions and any applicable fees in your checkbook register.

Look to your credit union for good deals. Surveys show that credit unions, as not-for-profit financial cooperatives, generally offer more favorable terms than elsewhere on loans and credit cards. In fact, recent surveys by the Credit Union National Association and the Consumer Federation of America, a nonprofit association of consumer groups, found that credit union credit card rates average five percentage points lower than bank credit cards. What’s more, the surveys found that credit union new auto loan rates average about 1.5 percentage points lower than those at banks, and personal loan rates average almost two percentage points lower.

Watch how you handle easy credit. Think twice before taking advantage of what seems like easy money: Reserve home-equity lines of credit for concrete purposes, such as home improvements or your child's college education. Avoid borrowing against the value of your investments, which could end up costing you a bundle if the value of your securities fall and you get a margin call. Only use overdraft lines of credit as an emergency measure to cover shortfalls in your checking account. Don’t cash those instant checks that come in the mail. And steer clear of credit card cash advances, which may sidestep grace periods and have additional fees, as well as sometimes charge higher interest rates than for regular purchases.

Consider your need for Member Protection Insurance. When you take on new debt, consider how you would pay it off if you die or become totally disabled. Some credit unions provide Loan Protection Insurance from the CUNA Mutual Insurance Society at no direct charge to the member. Many credit unions also make optional credit life and disability insurance available from the CUNA Mutual Insurance Society. Generally, no medical exam is required and coverage is immediate. Whether this coverage is appropriate for you depends on your age, health, financial situation, and the insurance coverage you already have or are eligible for. Unlike credit insurance sold by for-profit lenders, CUNA Mutual's credit insurance offered through credit unions has been singled out by the Consumer Federation of America, a nonprofit association of consumer groups, for its good consumer value.