Don't Get Caught with Your Credit Down: How to Build and Maintain Good Credit (Plus, Some Surprising Stats!) | INVESTEDMOM
Your credit score is one of the most important aspects of your financial health. A good credit score can help you qualify for loans, credit cards, and better interest rates, while a poor credit score can make it difficult to get approved for credit or result in higher interest rates and fees. In this article, we'll explore how to build and maintain good credit.
What is a Credit Score?
A credit score is like a report card for your money. It's a number that shows how good you are at borrowing and paying back money. Just like you get grades in school, for doing well on tests and homework, or a performance review at work, your credit score is a grade for how responsible you are with money.
Your credit score is based on things like whether you pay your bills on time, how much money you owe, and how long you've been borrowing money. It's important to have a good credit score because it can help you get approved for loans and credit cards, and can even affect things like getting a job. The most commonly used credit score in the US is the FICO score, which is used by many lenders and financial institutions.
To keep your credit score high, you should always try to pay your bills on time, keep your credit card balances low, and only borrow money when you really need it. By being responsible with your money and building a good credit score, you can set yourself up for a bright financial future!
Why is Good Credit Important?
A good credit score is important for many reasons, including:
Access to credit: A good credit score can make it easier to get approved for credit, such as loans, credit cards, and mortgages.
Lower interest rates: With a good credit score, you may qualify for lower interest rates on loans and credit cards, which can save you money in the long run.
Better credit terms: With good credit, you may be eligible for better credit terms, such as higher credit limits, longer repayment periods, and lower fees.
Employment opportunities: Some employers may review your credit history as part of the hiring process, particularly for positions that involve financial responsibilities.
Credit Score Range: While your article mentions that credit scores range from 300 to 850, it may be helpful to provide more context on what credit scores within that range mean. For example, a FICO score of 670 may be considered a "good" score, while a score of 800 or higher is considered "excellent." Understanding what range your credit score falls into can help you set goals and work towards improving your credit score.
How to Build Good Credit
Building good credit takes time and effort, but it's worth it in the long run. Here are some tips for building good credit:
Establish credit To build good credit, you need to establish credit by opening a credit account, such as a credit card or a personal loan. If you don't have any credit history, consider getting a secured credit card, which requires a deposit that serves as collateral. Make sure to make your payments on time and keep your balances low.
Make payments on time Payment history is the most important factor in your credit score, so it's crucial to make all of your payments on time. Set up automatic payments or reminders to ensure that you don't miss any payments.
Keep your balances low High credit card balances can negatively impact your credit score, so it's important to keep your balances low. Ideally, you should keep your credit card balances at or below 30% of your credit limit.
Limit credit applications Each time you apply for credit, it can negatively impact your credit score. Limit the number of credit applications you submit and only apply for credit when you need it.
Monitor your credit report Regularly monitoring your credit report can help you identify errors and fraudulent activity. You're entitled to one free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) each year.
Credit Utilization: One factor that has a significant impact on your credit score is your credit utilization ratio. This refers to the percentage of your available credit that you're using. Ideally, you should aim to keep your credit utilization below 30% to maintain a good credit score. This means that if you have a credit card with a $10,000 limit, you should aim to keep your balance below $3,000.
Types of Credit: Another factor that can impact your credit score is the types of credit you have. It's important to have a mix of credit, including both revolving credit (like credit cards) and installment loans (like a car loan or mortgage). Having a variety of credit types can demonstrate to lenders that you're responsible with different types of credit. However, it's important to only take on the credit you need and can manage responsibly.
How to Maintain Good Credit
Once you've established good credit, it's important to maintain it. Here are some tips for maintaining good credit:
Continue making payments on time Making payments on time is the most important factor in maintaining good credit. Set up automatic payments or reminders to ensure that you don't miss any payments.
Keep your balances low To maintain good credit, it's important to keep your credit card balances low. Try to keep your balances at or below 30% of your credit limit.
Avoid opening too many accounts Opening too many credit accounts can negatively impact your credit score. Only open accounts that you need and can manage.
Monitor your credit report Regularly monitoring your credit report can help you identify errors and
Review your credit report Regularly reviewing your credit report can help you identify errors and fraudulent activity. You're entitled to one free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) each year. Review your report for any errors or inaccuracies and dispute them with the credit bureaus.
Credit Repair: In the event that you have errors on your credit report or negative marks that are impacting your credit score, you may want to consider credit repair strategies. One option is to dispute errors on your credit report directly with the credit bureau. Another option is to work on improving your credit over time through responsible credit management, such as making payments on time and keeping your credit balances low. Be cautious of companies that claim to repair your credit for a fee, as they may not always have your best interests in mind.
Surprising Stats on Credit:
According to a recent survey by Credit Karma, only about 55% of Americans have good or excellent credit scores, with the average score being around 680.
About 1 in 5 Americans have an error on their credit report, according to the Federal Trade Commission.
The average credit card debt per household is over $8,000, according to a recent survey by NerdWallet.
During the pandemic, the average credit score in the US rose to an all-time high of 710, according to credit bureau Experian. This increase was likely due to a combination of factors, including government stimulus payments, widespread mortgage forbearance, and lower consumer spending.
Despite the pandemic-related increase in credit scores, many Americans are still struggling with debt. According to a recent survey by Bankrate, 35% of Americans have credit card debt, with an average balance of $3,778. Additionally, 27% of Americans have non-mortgage debt, such as personal loans, with an average balance of $16,940.
In terms of credit reporting errors, a recent study by the Consumer Financial Protection Bureau (CFPB) found that credit reporting agencies are failing to properly investigate consumer disputes. The study found that 75% of disputes result in no change to the credit report, even when the consumer has provided evidence of an error.
What's next?
I would like to add that building and maintaining good credit is an ongoing process. It's important to be consistent in your efforts and to avoid making any mistakes that could negatively impact your credit. This includes things like making payments on time, keeping your credit balances low, and avoiding opening too many accounts.
It's also important to be patient when it comes to building good credit. It takes time to establish a good credit history and to improve your credit score, so don't get discouraged if you don't see immediate results.
Remember, good credit is an essential part of your financial health and can open up many opportunities for you in the future. By following the tips in this article and staying mindful of your credit, you can build and maintain good credit and achieve your financial goals.
Don't get caught with your credit down - start building good credit today!
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Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!