4 Steps To Creating Your Dream Credit Score.
As your credit coach, it is my job to make sure you learn the importance of establishing a good credit rating with your lenders. Whether you are shopping for a new home, auto, or searching for the best deals on insurance, your creditworthiness will is based on your credit rating or credit score.
Poor credit history or bad credit habits will place "negative remarks" on your credit profile. These include things such as late payments, having an account in collection status, and of course, bankruptcy.
Establishing good credit habits will improve your creditworthiness. A higher credit score will show potential lenders you are low risk, and they will offer you substantially lower interest rates and better deals on credit offers.
Here are four tips to help you create a better credit profile:
1) Pay Your Bills On Time
Yep, I said it. Pay your bills on time. It's the most critical component of your credit score. Paying your bills on time can land you up to 192.5 credit score points. Lenders use your past and current payment history to decide the type of credit risk you present to them. How you pay off your debts now indicates to them how you will pay off future debts.
2) Credit Cards: How many do you have?
How much is too much? How little is too little? Well, as a credit coach, I suggest two to four credit cards is just the right mix. What's more important is the fact you have a credit card at all. The amounts owed category on your credit report make up 30% of your overall score. Meaning if you have credit cards and installment loans, you can gain up to 165 credit score points. However, if you are maxing your credit cards out or do not have a positive credit card reporting to your report, you are missing out on significant credit score points.
3) Manage Your Debt
Always pay at least the minimum due payment, but never less. And remember, just paying the minimum payment means it will take you years to pay off a high-interest credit card.
Example: Paying off a $2,000 credit payment at 18% APR with a minimum monthly payment of 2% ($40 or less) will take you 30 years to pay off the amount plus interest.
To avoid credit card debt together, only use what you can pay back in full. My recommendation would be to keep all your credit card balances under 20% for excellent results.
4) Monitor Your Credit
Monitor your credit report from all three major credit bureaus - Experian, TransUnion, and Equifax - regularly. Check your credit profile at least annually. My recommendation is that you monitor your credit monthly. Each month you can get a full report from all three bureaus. Be sure to review it carefully and make sure that any past mistakes or disputes have been corrected.
Also, if you notice an account listed that you know that you have not personally opened, contact that creditor and the credit bureaus immediately. This could be a sign that you've had your identity stolen. Request to have a fraud alert placed on your profile and account to protect yourself and your credit.
Establish good credit habits early in life and reap the benefits that your excellent credit rating will provide you for the rest of your financial future.
Michelle Gregory — January 4 2023