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How to Use a Credit Union to Improve Credit, Reduce Debt

If you've experienced financial setbacks, you're familiar with the challenges that come with rebuilding your credit and paying down debt. It's easy to rack up debt on credit cards and miss a few payments that hurt your credit score, but high interest and reduced credit availability can make the recovery process much more difficult.

But even when your circumstances seem grim, you have options. Often, consumers struggle not because they're in a dire financial situation, but because they don't have the right support to give them a path to recovery. Credit unions offer a customer-first approach that works with you to provide financial services that help you achieve your financial goals, even when those goals are as simple as rebuilding your credit and paying down your debt.

In fact, here are five simple ways your credit union can guide you toward better money management, and a better outlook for your personal finances.

1. Consolidate debt through a personal loan or mortgage refinance.

Struggling with a large amount of debt? Paying it off is often an uphill battle—and if you're battling high interest rates from carried-over credit card debt, it can often feel like you're making payments without seeing any progress in your recovery.

Your local credit union can help you achieve debt relief by consolidating your existing debt into a single loan that may offer a much better interest rate. Or, if you're a homeowner, you can consider a mortgage refinance that lumps in this excess debt and sets a manageable interest rate that will help you pay it off faster. Given the historic lows currently available for mortgages, this may be an even more attractive option to consider. Your local credit union can help you sort through these options.

2. Open and maintain a line of credit.

Credit union financial healthWhether you apply for a credit card or open a home-equity line of credit (HELOC), a credit account with your credit union will give you a line of credit that you can use to keep your credit utilization low, which increases your credit score.

"By managing a line of credit wisely—by making on-time payments and keeping overall credit utilization low—you could position yourself for credit limit increases in the future," says Brad Scheidt, Executive Vice President (EVP) of Oklahoma Central Credit Union. "Not only does opening and managing a line of credit improve your credit score in multiple ways, but access to a line of credit can help you improve your financial stability if you ever have sudden expenses you can't cover with your bank account."

3. Pay bills on time through online bill pay.

Missed payments can lead to late fees and can leave a negative mark on your credit report—a missed payment can take two years before it is removed from this report. On-time bill payment is one of the easiest ways to improve your credit over time, while also sparing you from unnecessary fees and penalties.

With online bill pay services offered by your local credit union, you can easily manage these bills and make sure they're paid on time, every month—which will lead to a string of positive marks on your credit report.

4. Build up savings to avoid credit debt.

Credit union financial health 2Credit debt often results when consumers lack the cash to cover all of their expenses. By building up your savings, you can increase your amount of available funds to cover unexpected costs, thereby reducing your risk of carrying over a credit card balance.

"Your credit union may offer a number of different savings accounts and savings tools to increase the amount of funds at your disposal," says Scheidt. "This may include traditional savings, money market accounts, certificates of deposit, and several different investment vehicles to help you not only save money but grow its value."

5. Invest in a long-term relationship with your credit union.

Part of your credit score is determined by the age of your accounts. The longer you keep your accounts open and in good standing, the more positively this reflects your creditworthiness.

No matter how many accounts you open at your credit union, it's in your best interest to maintain these accounts over time, increasing the average age of your accounts. And, when you have financial needs in the future, your longstanding relationship with the credit union may also be an asset in seeking out credit, loans or other support. Unlike a major national bank, you won't just be another name without a face—and as a longstanding member, this relationship will increase in value over time.

Even when building credit and reducing debt feels impossible, there's always a path to recovery. One of the best things you can do is find a credit union that will serve as a trusted partner in helping you take action to improve your finances and build a brighter future.
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