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Build Your Credit and Your Future with Smart Debt9/27/2017

For many people, particularly teens and young adults, bigger purchases in life can require borrowing money, and to qualify, you’ll almost certainly need to have a credit score. One way to build a good credit score is to have some amount of debt on which you make regular, on-time payments. But not all debts are the same, and not all borrowers have the same needs. It’s important to be careful and understand how to use debt to your advantage, rather than letting it take advantage of you.

Beware debts of convenience and unnecessary purchases; instead, focus on debt that adds value to your life.

When you take on debt, consider what you’re gaining in exchange. You may get a loan for an item that you intend to use frequently, such as a vehicle, or perhaps you are buying something you think will increase in value, like a home. Or you may be financing something you consider an investment in your future, such as a college education. Managing debt wisely can help you build positive credit history.

  • Student Loans – By furthering your education, you could improve your professional image and earning potential. This can be a good reason to take on additional debt, but be careful to consider the costs of a student loan. Will the education you receive prepare you for a job that will earn enough to repay your debt? Be sure to explore other funding options like scholarships and grants before considering a loan.
  • Credit Cards – Some people use credit cards because it’s easier than carrying cash, but remember that purchasing with credit is actually borrowing money – you still have to pay for the item, and you will pay interest if you don’t pay off your balance each month. If you use a credit card with the intent to carry a balance, look for a card with a low interest rate. Sensible credit card usage is often the easiest way to build a credit history.
  • Auto Loans – Vehicles can enhance your quality of life – for instance, most people need one to get to work. However, cars depreciate in value. To offset this decline, be smart about your purchase. Do your research, shop around, and be sure to take advantage of low-rate financing. Buying used is a great option to consider since used cars tend to depreciate more slowly. Research the types of maintenance needed on different vehicles to get an idea of your future vehicle expenses.
  • Savings Secured Loans – Savings Secured Loans can be a good alternative for those who wish to build credit or obtain a loan at a low rate. Funds in an SLFCU savings account are held as collateral and released as monthly payments are made toward the loan balance.
  • Mortgages – Homes may help people build wealth in the long run, although this isn’t guaranteed. However, many people prefer the chance to build equity rather than paying rent to a landlord. If you are considering financing a home, be sure to buy a house you can afford, including costs for property taxes, insurance, and maintenance. 


Establishing good credit history and maintaining it will help your future financial prospects. To build a credit history, improve your credit score, or maintain good credit, start by following these tips:

  • Make your payments on time. Part of your credit score is determined by whether or not you pay bills on time. You can set up automatic payments online through SLFCU’s bill pay system in online banking or through the biller’s online payment system to ensure you never make a late payment.
  • Do not charge more than 25-30% of your available credit. If you have three credit cards and your combined credit limit for all three cards is $20,000, you shouldn’t charge more than $5,000-$6,000, even if you intend to pay the balance every month. Credit card companies can report your balance to credit bureaus at any point during the month, so it may look as though you are using more of your available credit, which will lower your credit score. 
  • Check your credit report at least once a year to ensure accuracy, as mistakes on your report can lower your score. You can request a credit report from each of the three major reporting agencies for free at If you request a report from one of the agencies every four months, instead of obtaining them all at once, you’ll have more up-to-date information and may be able to catch errors earlier. These free reports do not include your credit score.

If you need help reviewing your credit report, call us at 505.293.0500 or 800.947.5328.

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