Building credit doesn’t happen overnight. It takes time and patience to build if you don’t have any credit history and to rebuild if you have negative credit history. Your credit history creates your three-digit credit score. Whether good or bad, the credit score is a look into your financial life. If you don’t have credit history or good credit, it may be challenging for you to get what you want or need.
Why good credit matter?
In today’s world, credit is a significant part of our lives. Many lenders and creditors use your credit history to gauge your creditworthiness. Lenders use credit scores to determine loan approvals and interest rates you pay. Landlords use it to decide who rents their apartments. Some employers use your credit information to determine whether to hire you for the job.
Having good credit suggests that your financial situation is on the right track, you’re likely to pay your bills on time, and you repay what you owe. It tells the lender that you’re a financially responsible borrower. On the other hand, bad credit indicates that you may not manage your finances well, pay your bills late, or you may not repay what you owe. It tells the lender that you could be a riskier borrower.
Better rates on auto insurance and lower security deposit on renting an apartment.
You increase your chances of being approved for a loan and credit card.
You may be offered a higher credit limit and better loan terms.
Tips for establishing good credit
1. Spend money wisely.
How you spend or overspend can impact your credit. To have good credit, you must prove you're capable of using credit responsibly. If you have a credit card, try not to charge up to your maximum credit card limit. This could have a negative impact on your credit score. The best strategy is to keep your balance at 30% or less of your credit card limit.
Make all your payments on time, not only with your credit accounts but also with your other accounts, such as mobile and utility bills. Bills that go unpaid could go to a collection agency, which could hurt your credit score.
Another way to establish good credit is to pay your balances in full each month. It will prevent interest charges and help you manage your spending. Plus, this will help keep your credit utilization low. If you do carry a balance, try to keep it at 30% or less of your credit limit.
4. Maintain your accounts.
Don’t close your credit card accounts. Keep accounts open for as long as possible because this helps with the length of your payment history and credit utilization.
Credit plays a significant role when it comes to your finances. Without it, you may not get approved for a loan to purchase a new home or you could miss out on your dream job. When you take the steps necessary to establish and maintain good credit, you’ll likely reap the benefits of saving money and getting what you need and want. Establishing good credit is an ongoing process and doesn’t magically happen overnight. Be patient and disciplined when it comes to building your credit.