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6 Steps to Establish Good Credit Habits

Team Jar
December 30, 2022
6 Steps to Establish Good Credit Habits

Looking for ways to build good credit? Practice these six good credit habits to maintain a high credit score.

You can develop various habits to preserve the stellar credit score you've worked so hard to establish, and there's one key benefit to doing so: money management.

A high credit score typically translates into lower interest rates, which in turn translates into more money in your bank account. You'll be more likely to be granted credit in the first place if you have a high credit score.

Your credit history provides insight into your past personal money management practices. And that history can be seen in your credit score, a three-digit number that compiles the details of your credit report. When setting the terms of loans, including mortgages, creditors can use that score to assess a borrower's creditworthiness.

You can improve your credit score by adhering to a sound money management system or by managing your finances correctly and maintaining them over time.

Why Is Having Excellent Credit Important?

Your overall financial health is largely dependent on maintaining good credit. You'll have access to a wide range of beneficial financial options if you practice wise money management.

A good credit score increases your options, whether you want to finance a car, a home, or keep some extra cash on hand in the form of credit cards. A higher credit score can lead to more credit card options and loans, better terms, and lower interest rates.

Are you trying to find a place to rent? Your chances of getting approved may go up if you have a good credit score. Even saving money on insurance is possible with good credit.

This article will discuss good credit habits that could position a person to raise their credit score and secure a better financial future.

6 Steps To Establish Good Credit Habits

Using credit responsibly over time is necessary for a high credit score. Here are a few steps to manage money wisely and keep your score up:

1. Make Prompt and Timely Payments

Paying your credit card bill on time every month is one of the most crucial credit card habits you can develop. Your credit score may suffer if you miss a payment, and you may also incur late fees and interest.

Your payment history is crucial when it comes to your credit score. For instance, the most significant contributing factor to your FICO (Fair Isaac Corporation) credit score, which accounts for 35% of your overall score, is your payment history, so late payments can have a significant negative impact on your score.

On the other hand, consistently paying your debts on time can significantly raise your credit score. Pay off your credit card balance in full before the end of your statement period if you want to improve your credit score before applying for a credit product.

This is the best way to manage money, be it money management for young adults or managing finances as a couple. As a result, lenders may consider your required minimum monthly payments to be lower, which could help your credit score.

2. Examine Your Statement Thoroughly Each Month

Every month you should sit down and carefully review your credit card statement after you receive it. This review can also be used to reexamine your spending patterns and financial plan. It's a good idea to check that all of the charges you're paying were made by you and that no fraud took place at this time.

Your statement will detail the amount you owe, the due date for payments, the penalties for late payments, and the interest and fees that will be assessed. Do you check the gas in your car before a long drive?

Do you check the milk's expiration date in your refrigerator before consuming it? Indeed you do. It doesn't take long. The same is true when looking over your credit card statements. You can also come up with a plan to better manage your finances and pay off any outstanding debt, if any.

3. Maintain a Low Credit Utilzation Rate

Your credit card balances are compared to your credit limits in credit utilization. The process is as follows: Your available credit is determined by adding the credit limits on all of your credit card accounts.

Add up the balances on each of your credit cards next. Calculate your credit utilization ratio by dividing your total balances by the total amount of your available credit and then converting it to a percentage.

Generally, maintaining a utilization rate under 30% will protect your credit score. Start managing your finances effectively.

4. Start With One Credit Card Only

In just the first few years of using credit, it's simple for a beginner to amass a collection of credit cards. Don't make the error of obtaining too many credit cards too soon.

It will be more difficult for you to manage your balances and payments the more credit you have available to you. Manage your money better by managing your finances effectively. Your credit score may suffer if you open too many new credit cards or have too many credit inquiries.

5. Use Just a Small Portion of Your Available Credit

It is reckless to use all of the available credit on your credit cards, especially if you don't intend to pay off the entire balance within the month.

Lenders are aware that card-maxing borrowers frequently struggle to pay back the money they have borrowed. When you accumulate large credit card balances and fail to pay them off, your credit score suffers as well.

6. Use Only the Credit You Can Afford

A credit card does not permit you to make unaffordable purchases. The quickest way to accrue debt and damage your credit is to use your credit card excessively.

The best way to establish good credit is to create the habit of only spending what you can afford. This clever money-management plan shows potential creditors and lenders that you're a trustworthy borrower.

When you demonstrate that you have the self-control to borrow only what you can afford to repay, it will be simpler for you to borrow money and obtain new credit.

Conclusion

You can build a roadmap for financial wellness and prosperity that will help you achieve your goals and prevent financial setbacks by forming and upholding positive habits. Start your journey to better credit right away by following these steps!