Financial Wellness Tip 9: Build & Maintain an Excellent Credit Score
Your credit score is a crucial part of your financial health. The three little numbers measure the capacity of your credit, the proficiency of your money management and your fiscal responsibility. An excellent credit score can open the door to large loans with better interest rates, as well as employment opportunities and more. On the flip side, a poor credit score can be a strong impediment toward building wealth, funding large purchases and finding gainful employment.
Let’s explore the best ways to build and maintain an excellent credit score.
Have several active credit cards
Building and preserving a healthy credit score requires owning a few cards and keeping them active. If you’re just starting out, consider signing up for a beginner’s card, which generally features easy eligibility requirements and very little available credit. Otherwise, have a minimum of three open cards that you use wisely on a regular basis.
Work on paying down debt
First, choose your debt-crushing method: The snowball method works by putting all available funds toward paying off the lowest debt first, and then the next-smallest, until all debts are paid off. The avalanche method works the same way but focuses on paying off the highest interest rate debts in descending order until all are paid off. With the snowball method, you’ll get faster results, but may end up paying more in overall interest payments on all debts. Showing the credit bureaus that you’re on track to pay off your debt can do wonders for your score.
Pay your bills on time
Paying credit card bills when, or before, they’re due is a major factor in your score. Continually carrying an outstanding balance, and/or owing lots of interest, shows that you can’t be counted on to responsibly repay loans. Remember, you can set up automatic monthly payments for your bills so you’re always on time.
Bring down your credit utilization ratio
Another crucial factor in your score, your credit utilization ratio, refers to the amount of available credit you use. Keep your utilization under 30%, or even 10% if you can. To that end, make sure you’re using just a bit of your available credit each month. In addition, consider accepting offers for increased credit – as long as you know you won’t rack up huge bills simply because of having all that credit.
Use the tips outlined here to build and maintain a great score.