Having a good credit score is essential for financial success. But building and maintaining a good credit score can be difficult to understand for many people. Fortunately, there are some secrets to making the process easier. In this article, we will outline 5 little known secrets to building good credit, so you can start using these strategies right away. From budgeting your finances wisely to understanding how lenders assess your creditworthiness, these strategies will set you on the path of having an excellent credit rating in no time.
Tip 1: Pay Bills on Time
Paying bills on time is one of the most important steps to building good credit. It is also the most basic and easiest to do. Making payments on or before their due date will help you build a solid credit history, which is essential for obtaining favorable rates when taking out loans and other forms of financing. Paying bills late can have serious consequences such as late fees, penalties, and even increased interest rates. It can also reflect negatively on your credit report, which can make it difficult to qualify for loans in the future.
The best way to ensure that all of your bills are paid on time is by setting up reminders using your phone or setting up automatic payments with your bank or lender so that you never miss another payment again. You should also keep track of all your accounts in one place, so you know exactly when each payment is due and how much needs to be paid each month. Set up one day a month that you review your list of accounts and make sure each has been paid.
Tip 2: Monitor Credit Reports
It is essential to keep track of your credit report in order to ensure financial success. Checking your credit report for errors or any suspicious activity can help build and maintain strong credit. You can obtain a free copy of your credit report from the three major reporting bureaus, Experian, Equifax, and TransUnion. By regularly monitoring these reports, you will be able to spot any discrepancies that could potentially damage your credit score. Additionally, many companies offer services that provide easy access to all of your reports conveniently located in one place. One option to check out is Credit Karma. Free app on your phone allowing you to quickly and easily check your credit. One downside is that it doesn't provide access to all three bureaus, so you still need to get your free annual credit report once a year.
Being proactive about tracking and monitoring your credit is an effective way to protect yourself from identity theft or fraud. Regularly reading through each report helps you find unfamiliar accounts or changes in addresses associated with them, as well as any costly late payments that could have been overlooked when paying bills on time. Furthermore, it's important to stay on top of erroneous information like incorrect account balances, which are reported by creditors and can drastically hurt a person’s score if left unchecked. While it may seem tedious at times, keeping up with regular checks is an invaluable part of maintaining financial success and good standing with the three major bureaus.
Tip 3: Keep Balances Low
Keeping balances low is one of the best ways to build good credit. This means paying down your credit card balance each month and keeping it as close to zero as possible. Paying more than the minimum on your credit card can help you save money in interest payments, too. It’s also essential to keep track of how much you owe compared to your total available credit; a ratio less than 30 percent is ideal, and 10percent is even better. Try setting up an automatic payment plan for at least the minimum payment each month, if not more. You can also set up alerts from your bank or credit card company. Use those so you know when you have exceeded a certain percentage of spending or when payments are due, helping ensure that you don’t go over budget or miss any payments. Bonus tip: Credit reports don't have a memory. So you could owe $999 on a $1000 card today, pay it down to $100, and your score will improve as soon as that balance is reported to the credit bureaus (once a month). Now, don't charge it back up!
Tip 4: Don’t Open Too Many Accounts
Don't be tempted to open too many accounts in a short period of time. This will negatively affect your credit score and cause creditors to view you as high risk because it appears that you need more credit than you can handle. Keep your account openings to a minimum, no more than three in any one year. When applying for new credit, make sure the creditor is a reputable company with good customer service. Avoid store cards or other offers with limited features and higher interest rates unless absolutely necessary. Also pay close attention to the details of any offer before opening an account; look out for hidden fees and penalties which may come into effect if payments are not made on time or other terms are breached. Finally, always stick within your budget when shopping around for new credit so that you don't overspend on something you cannot afford. Use your inquiries for the best use possible. Don't apply for the store card to save 10% on a sweater at the department store when you want to buy a house, or a car.
Tip 5: Don't close unused credit accounts
When it comes to building good credit, one factor in your credit score is having longer-term accounts. Closing an account may seem like a good idea to avoid temptation or fees, but in reality it can actually hurt your credit score in the long run. When calculating your credit score, one factor used is the average length of time you have had an open line of credit with lenders. The longer the time period, the better, so closing accounts that are no longer used can have a detrimental effect on your financial success.
By following this tip and not closing unused accounts when building good credit, you are more likely to increase your overall success with creditors. They will see that you have consistently been managing debt over an extended period of time, something that they always appreciate!
Conclusion: Reap the Benefits of Good Credit
Good credit is an important asset in life and can provide numerous benefits, such as access to lower interest rates on loans. Building good credit takes time and effort, but the rewards are well worth it. Following these steps will help put you on the path to financial freedom by improving your overall financial health.
Once you have established good credit through consistent responsible behavior, you can reap some great rewards. You may be able to qualify for lower interest rate loans or even receive special discounts from lenders due to having a solid financial profile. Additionally, being able to demonstrate that you have managed your finances responsibly creates peace of mind in other areas of life, such as renting an apartment or obtaining insurance coverage at better rates than those with bad or no credit history at all. Finally, a good credit rating also gives you more leverage when negotiating with creditors if something goes wrong with one of your accounts; they'll be more likely to work out a payment plan rather than turning the account over for collections.