Good credit is not by chance, and it is not about playing the system. Good credit is often the result of smart decisions. Good credit habits, such as paying bills on time, can help you achieve and maintain higher credit scores – and reap the rewards associated with it.
Why Is Having Stellar Credit Important?
Good credit is a key to your general financial health. This gives you access to a variety of helpful financial options. Whether you want to buy a home, finance a car, or maintain additional spending capacity with credit cards, good credit expands your options. A higher credit score can open the door to more credit and credit card options, lower interest rates, and better terms.
Would you like to rent an apartment? A good credit rating can improve your chances of getting approved. Good credit can even assist you save on insurance.
The exact calculation of your credit scores is kept secret, but the factors that help determine them are known. Their exact algorithms differ, but both take into account similar factors, including:
- Payment history
- Credit recovery
- Length of credit history
- New accounts
- Credit mix
This information is important for lenders who decide whether to accept you as a borrower and what interest rates they will offer you if they do so. Do you have a history of responsible credit management and timely repayment? Are you taking on a lot of debt? Have you defaulted in the past? Answers to these questions help lenders determine how much risk you are taking as a borrower.
If you plan to apply for credit soon, there are things you can do to “clean up” your credit. Paying off debt, taking care of overdue accounts, and continuing to pay on time are just a few examples. However, there are no quick fixes. Maintaining healthy credit practices over time is the easiest way to get good credit – and it can help you maintain overall sound finances.
Good Credit Habits to Practice Daily
To keep your credit healthy, here are four regular habits you should practice every day:
· Pay Your Bills on Time!
The most important thing you can do to get a good credit score is to pay your bills on time. To make sure you don’t accidentally miss a payment deadline, you should consider setting up automatic monthly payments at least for your minimum amount. You should also consider checking your balance and making payments throughout the month instead of waiting for your bill to come due. This can help you avoid interest and ensure you don’t miss a payment.
· Keep Your Credit Utilization Low
Credit utilization calculates your credit card credits against your credit limits. Here’s how it works: Add the credit limits on all your credit card accounts to find your available balances. Next, add all your credit card balances. Divide your total balances by your available balances and convert them into a percentage to maintain your credit utilization.
When it comes to credit score, the lower the utilization, the better. Usually, a utilization below 30% prevents the credit score from being damaged; those with the highest credit scores tend to have credit utilization rates in the low single-digit percentage range.
· Check Your Credit Score Regularly
It is always handy to know where your credit score is and how it has changed: it helps you understand the impact your actions have on your scores. Furthermore, periodically reviewing your credit score can help you spot problems that could be brewing and reverse course if you get off track. If you are about to improve your credit, a rising score is great positive feedback.
A regular review of your credit report is also a good idea. Not only can you spot any negative or inaccurate information that may emerge, but you can also make sure that there are no new accounts for which you have not signed up – this can be a sign of identity theft.
· Apply for New Credit Only When Needed
Multiple accounts and a mix of credit types are good for your credit score. It is a signal to lenders that you have the expertise to manage different types of credit.
But too many current loan applications can affect your credit rating. Whenever you apply for a loan or credit, the lender makes a request for your credit report, known as a hard inquiry. Although a single hard inquiry alone could lead to a slight and momentary deterioration in your credit score, many current applications can have a greater impact on your credit rating. A constant stream of hard inquiries — or a recent flood of requests – can make lenders consider you more of credit risk.
· Good Habits and Healthy Prospects
Developing these 4 basic habits can assist you to keep your credit in great form. In addition, monitoring your credit can help you track your progress and keep track of your goals. With a little vigilance and consistency, you can build good credit habits and the healthy financial outlook that comes with them.