Build and Maintain an Excellent Credit Score
Your credit score is vital to your financial health. This number measures your money management skills, credit capacity, and fiscal responsibility. An excellent credit score can open the door to larger loans with better interest rates, employment opportunities, and more.
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 and keeping a few cards active. If you’re starting, consider signing up for a card designed for beginners. These usually feature very low credit limits, but easy eligibility requirements. 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: snowball or avalanche. 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 you may pay 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 on time or early majorly impacts your score. If you continually carry an outstanding balance, and/or owe lots of interest, it can seem like you can’t be counted on to repay loans responsibly. 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 possible. 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 an excellent credit score, and find more like this on our MoneySmart Tips blog.