Five ways to establish good credit
Every credit transaction since your first credit card, or loan you borrowed has made up your credit history. Bill payments such as cell phone can also contribute to your score. The state of your credit history will determine your credit score. You’ll want this number to be as high as possible because a high score comes with advantages like being able to take out more loans if needed, secure a mortgage, and have increased limits on your credit card or line of credit. It’s important to form good habits that help you build and maintain a great credit score as soon as possible. Here are five tips to get you on the road to better credit.
Many people, when they get their first credit card or approved for their first loan, spend with abandonment. Banks will normally approve you for more money than you can pay off. While you may be able to make the minimum monthly payment, it’s good practice to avoid borrowing more than you can pay off. This will make it easier for you to get new credit cards and secure more loans down the line. While the banks over lending may be the reason you develop bad credit, they will also penalize you for it when you go to secure a loan. Borrowing what you can afford to pay back will help you avoid excessive amounts of debt.
The timeliness of your bill payments is an important component of your credit score, so it’s important to always pay your bills by the due date. This goes for all your bills, not just your credit cards and loans. Bills that are past due will be recorded as part of your credit history and have the potential to lower your credit score.
While you’re not required to make more than the monthly minimum payment on your credit card or other loans, you should get into the habit of doing so. We suggest paying your bills in full, however, if you can’t do that, try to pay as much of it as possible. Paying more than the bare minimum helps you build trust with your lender and shows that you prioritize paying your bills. Making more than your minimum payment helps you chip away at your debt quicker, so you’ll pay less interest over time.
When it comes to establishing good credit, it's essential to keep your balance low. The higher your monthly balance in relation to your credit limit, the lower your credit score will be. To avoid this, experts advise that you keep your credit balance within 30% of your credit limit, so if your credit limit is $1,000, your balance should be no more than $300. A lower credit balance is easier to pay off and shows lenders that you’re a responsible spender.
Finally, to establish a good credit score, you need to keep an eye on your credit report. Watching your credit report closely will help you know where you stand and how much work needs to be done to better your credit score. Also, just because you’re careful and avoid making mistakes when it comes to your credit doesn’t mean that everyone else will. Sometimes you may find errors on your report which could lead to a drop in your credit score. Keeping an eye on your report will help you spot errors sooner so you can contact your financial institution to correct them before further damage is done.
Building and maintaining good credit is important for your financial health. With these simple tips, you’ll be on the fast track to financial well-being – whether you’re starting from scratch or correcting past mistakes.
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