Monday, 4 November 2019
Using credit responsibly can help reach your financial goals, but using it irresponsibly can cause long-term damage.
If you want to manage credit well and avoid potential problems, it's important to know how your financial behaviors affect your credit—and take deliberate steps to build and use credit wisely.
Consider these tips to help you take control of your credit and manage it well.
1. Build credit carefully
You may want to start building credit by getting a credit card with a low credit limit, such as $500 or less. Make a small purchase with the card each month and pay the bill off each month. This will help you begin building a positive credit score.
Your payment history accounts for 35 percent of your credit score, according to FICO®. That means if you have a history of paying credit card bills on time, that can have a positive impact on your score—but if you have a history of missed payments, that can have the opposite effect. If you've always had a history of revolving credit on-time payments, that can help you build a strong credit history.
Your credit score is based on the information included in your credit report. The information in that report is used to assign your credit score. You can request a free copy of your credit report every year without hurting your score from the government-endorsed AnnualCreditReport.com. Make a habit of requesting that report every year and keeping an eye on your credit.
Your credit score, which is a number between 300 and 850, shows potential lenders how likely you are to pay back money they lend you. A credit score of 720 or above is generally considered excellent. While your credit score is based on the information in your credit report, it's not usually included in the report. Some credit card issuers also offer a free credit score anytime.
Even if lenders or credit card companies extend credit to you, it's best not to use all of it. In fact, FICO® recommends keeping your credit utilization rate as low as possible. Most credit experts recommend utilizing no more than 30 percent of the credit available to you. So if your credit card limit is $1,000, you may want to carry a balance of more than $300.
Sometimes credit reports include errors. For instance, a credit card company may report that your balance is unpaid when you've actually paid your bill. Or a criminal could steal your information and open a new credit report in your name, neglecting to pay the bill and lowering your score.
If you find errors in your report, you can get them corrected. But it may take some time and effort. If you believe information on your report is incorrect, contact the credit bureau and the company that was the source of the information. (It's also a great opportunity to check and ensure no one is using your social security number to secure credit under your name.) Be sure to include documentation proving your point. Keep following up until they've corrected the errors.
In some cases, your score may be low because of your own actions. Maybe you've missed payments or overused credit, which has led to a lower score. If so, you can improve your credit score, but it will take some effort. Start paying every bill on time and working to pay down debt. Over time, continue to manage your credit responsibly to work towards protecting and improving your score.
1 Upturn is a registered trademark of Upturn Financial, Inc. and is a member of the BBVA Group.
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