Categories: Business

How To Make Sure You Have Healthy Credit

It’s easy to think of your credit score as just a number. However, the more you look into it, the more you’ll realize it’s far more than such. It’s actually the gateway to your financial future.

Whether you’re trying to buy a house, secure a car loan, or even start a business, healthy credit opens doors and gets you better terms.

Why is it so hard to build and maintain good credit? The reality is that it requires intentional steps and smart habits. And if you’ve ever wondered how to whip your credit into good shape, you’re not alone.

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What Affects Your Credit Score?

If you’re going to be serious about having healthy credit, it would make sense to spend some time understanding how the cake is baked. In other words, what are the factors that impact your score? Well, it’s actually calculated based on several key components:

Payment History (35%): Paying your bills on time is the most significant factor. Even one missed payment can ding your score.
Credit Utilization (30%): This is the ratio of your credit card balances to your total credit limit. The lower, the better (ideally below 30 percent).
Length of Credit History (15%): The longer you’ve had credit accounts, the better it is for your score.
Credit Mix (10%): A mix of credit types, like credit cards, mortgages, and installment loans, shows lenders you can manage various financial obligations.
New Credit Inquiries (10%): Applying for too much credit in a short period can lower your score.

As you can see, it isn’t just one thing that impacts your score. There are two primary components (payment history and credit utilization making up 65 percent of the score), as well as three others that have a decent amount of influence.

Helpful Tips For Better Credit

Whether you have poor credit or fair credit, there are some steps you can take to optimize and improve. Here are a few suggestions:

1. Pay Your Bills On Time (Every Time)

This one might sound obvious, but it’s worth repeating: Paying your bills on time is the single most important thing you can do for your credit. Even a single late payment can stay on your credit report for up to seven years.

Set yourself up for success by automating payments whenever possible. Many lenders and service providers allow you to schedule recurring payments so you never miss a due date. If automation isn’t an option, set reminders on your phone or calendar.

2. Keep Your Credit Utilization Low

Just because you have a high credit limit doesn’t mean you should max it out. Lenders want to see that you’re using credit responsibly, and a low credit utilization rate shows you’re not overly reliant on borrowed money.

Aim to keep your balances below 30 percent of your total credit limit. For example, if your total credit limit is $10,000, try not to carry a balance higher than $3,000.

3. Regularly Check Your Credit Report

You can’t maintain healthy credit if you don’t know what’s on your credit report. Errors, outdated information, or even fraudulent accounts can drag your score down without you realizing it.

Request a free copy of your credit report from all three major credit bureaus – Experian, Equifax, and TransUnion –—at least once a year. Review it carefully for inaccuracies, such as:

Accounts you don’t recognize
Incorrect payment histories
Duplicate accounts
Inaccurate credit limits or balances

If you spot an error, dispute it immediately. Contact the credit bureau in writing, provide documentation to support your claim, and follow up to ensure the issue is resolved. If you don’t feel like you’re being listened to, you may want to work with an FCRA attorney to make sure your rights are protected.

If you spot an error, dispute it immediately. Contact the credit bureau in writing, provide documentation to support your claim, and follow up to ensure the issue is resolved.

If you don’t feel like you’re being listened to, you may want to work with an FCRA attorney to make sure your rights are protected.

4. Avoid Opening Too Many Accounts At Once

When you apply for new credit, lenders perform a “hard inquiry” on your report, which can temporarily lower your score. Opening multiple accounts in a short period signals to lenders that you might be desperate for credit – a red flag.

Instead, be strategic about new credit applications. Only apply for credit when you truly need it, and space out applications to minimize the impact on your score.

5. Build And Maintain A Long Credit History

The longer your credit history, the more confident lenders feel about your ability to manage credit responsibly. If you’re just starting out, consider opening a secured credit card or becoming an authorized user on someone else’s account to begin building credit.

For those with established credit, keep your oldest accounts open, even if you’re not actively using them. Closing long-standing accounts can shorten your credit history and lower your score.

Be Proactive With Your Credit

Life happens. If you’re facing financial challenges, don’t ignore them. Reach out to your lenders as soon as possible to discuss options. Figure out ways to clean up your spending and increase your monthly debt repayments. But whatever you do, don’t ignore it!

Bad credit doesn’t go away on its own. You need a healthy plan.