According to the Consumer Financial Protection Bureau, credit scores are predictors of how likely you are to pay your debts on time. That means your credit scores might help companies determine whether you are a good candidate for things like mortgages, car loans, credit card applications, rental applications, and even getting a job. There are some things you can do to help improve your credit scores, create healthy financial habits, and use credit responsibly. Below are a few tips:
Make Payments on Time
You should make payments on time, every time because your payment history can impact your credit scores and a missed or late payment does not only affect your credit, it also can lead to late fees and increased interest rates.
Think about setting up automatic payments or electronic reminders to ensure you always pay on time.
Stay Below Your Credit Limit
Only use the credit you need. Better yet, stay well below your credit limit. Why? Because your credit scores may be affected by how much of your total available revolving credit you’re using also known as credit utilization ratio. The lower your credit utilization ratio, the better your credit scores will be. In fact, the Consumer Financial Protection Bureau recommends using no more than 30% of your total credit limit.
Create A Budget
Creating a budget is a key step to reaching your financial goals. Credit cards are not just for spending—you can also use your credit card for budgeting because your credit card comes with a very useful tool for managing your money: i.e., your monthly credit card statement. Start by looking at your latest credit card statement. Scrutinize through your purchases or transactions and group your expenses into categories, then, sort those categories into essential and nonessential spending.
Once you can clearly see where your money is going, you can create a realistic monthly budget; you may even find ways to cut back on nonessential spending and start to save or pay down debt.
Consider Your Credit History
It may be tempting to close a credit card you don’t use, but keep in mind, this could impact your credit. Your credit utilization rate may increase if you close a credit card because you would have less total available credit and that can affect your credit scores as well. Once an account is closed, the average age of your credit history also changes depending on how long you have had the closed account. Since your credit scores are based partly on the length of your credit history, a shorter history can impact your credit scores.
Like any financial decision, you have to consider your unique circumstances. It is a good idea to weigh the pros and cons of your particular situation before deciding whether to keep older or unused accounts open.
Pay More Than The Minimum
When possible, you should pay your credit card bill in full each billing cycle; if you are unable to pay the full balance, it is a good idea to pay off as much as you can. Making your credit card minimum payments on time every billing cycle helps you avoid penalties and fees, it keeps your account in good standing, but remember making the minimum payment keeps you in debt. If you only pay the minimum and not the full amount, you will carry a balance and be charged interest on that balance. Those interest charges will add up and make it harder to pay off your credit card debt.
Monitor Your Credit
No matter where you are in your credit journey, it is a good idea to keep track of where your credit stands. You have the right to request one free copy of your credit report each year from each of the three major consumer reporting companies (Equifax, Experian and TransUnion) by visiting AnnualCreditReport.com or by calling 1-877-322-8228.
By requesting the reports separately (for example, one every four months) you can monitor your credit report throughout the year. Once you have received your annual free credit report, you can still request additional reports. By law, a credit reporting company can charge no more than $14.50 for a credit report.
If you still have questions about credit scores and credit reports follow the link to the Consumer Financial Protection Bureau https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/