Building a good credit history is essential to achieving your goals. For example, lenders award better interest rates on loans to people with good credit history; so if you’re looking to purchase a home or a car or finance your education, good credit will help you do so – and save you money in the long run.
Whether you’re just starting, or starting over, here are five ways to build a healthy credit history.
Be Timely in Paying Back Your Loans
One of the best ways to up your credit score is to pay back all your loans in a timely fashion. Quick repayment reflects well on your ability to handle credit, establishing trust between you and your lenders who are consequently more likely to approve future loans.
That said, if you’re struggling to repay a loan quickly, at least try to pay more than the minimum monthly repayment, even if it’s just a few extra dollars. Only paying the minimum can negatively affect your credit score.
Don’t Keep Too Many Credit Cards
While it may be tempting to take out as many credit cards as possible, too many cards can result in too much debt for your monthly budget to handle, and that’s not good for your credit history. The more cards you have, the greater the risk of defaulting on one of them, creating a permanent record on your credit history.
Keeping two or three credit cards and paying more than the minimum due each month reflects positively on your credit history and shows lenders that you can handle their approval.
Become an Authorized User
If you don’t have an established credit record or you need to rebuild your credit record, becoming an authorized user is a great strategy.
You can apply for authorized user status with a trusted family member or spouse who has a long, responsible credit history. With your name attached to their line of credit, you can reap the benefits without worrying about the responsibility of payment.
Make Wise Financial Decisions
Good credit histories are based on responsible and wise decision-making. To avoid a bad credit score, remember the following:
- Don’t live beyond your means: While it may be tempting to charge those expensive sneakers or flashy jewelry to your credit card, think about whether or not you can afford it. Remember that luxurious non-essentials are nice, but should only be purchased if you have disposable income.
- Pay for the essentials first: Make sure that priorities like food, shelter, education, and utilities are paid for first before you decide to add to your debt with nonessentials.
- Use credit wisely: Purchasing property, taking out educational loans, and consolidating debt via credit are good reasons to use credit facilities. Before taking out more credit, ask yourself if the debt you’re about to take on is worth the interest, and always make sure you can afford the repayments.
Credit is a beneficial tool that almost all of us will need at some stage in our lives. Make the right choices to ensure you build a healthy credit score and history so you can responsibly achieve all your life’s goals.