Your credit report and credit score are just one financial marker that paints a picture of your financial standing. However, the report determines whether you can access credit, loans, homes or cars — and on what terms.
The lower your score, the more you’ll pay. Whether you have bad credit, good credit or somewhere in between, you’ll need to nail these five credit habits to get or keep your credit score healthy and reap the benefits of a good credit score.
Your payment history makes up the biggest chunk of calculating your credit score, accounting for 35% of your total FICO score and 41% of your VantageScore. That means late payments can cause major drops in your score.
It’s easier said than done, but it’s worth setting up automatic payments when you can and building a budget to meet your payment deadlines across the board. The longer you pay your bills on time, even if you have a late payment or two, the better your chances for your score to increase.
2. Take caution when applying for new credit
Applying for new credit could mean positives and negatives for your credit. So, let’s break them down:
The positives:
Increase your credit mix. A good credit mix means having a healthy blend of revolving and installment credit. Applying for a new credit card or auto loan may improve your credit mix and overall credit score, but only if you can afford to make on-time payments.
Raise your credit limit. Increasing the total amount of credit you have could positively affect your credit if it decreases your overall credit utilization.
The negatives:
May drag down average credit age. The length of credit history makes up about 15% of your score. If you can, avoid adding several new accounts, because each one lowers the average age of your total accounts.
Hard inquiries. Lenders run a hard credit inquiry to determine your eligibility, and these inquiries account for 10% of your FICO score. While hard inquiries stay on your credit report for two years, FICO only considers inquiries from the last 12 months.
Temptation to overspend. While there are positives to a new credit line, having more access to credit could lead you down a path of more debt if you take on more than you can repay.
3. Don’t wait to repay your student loans
Student loan repayments resumed in October 2023, which has put many borrowers in a financial crunch. Work with your loan servicer to set up a repayment plan that matches your budget and allows you to make on-time payments. Skipping payments means taking on a huge risk — not only is interest still accruing, making the amount you owe larger with each month, but a missed payment can do huge damage to your credit.
The Biden administration put a 12-month on-ramp period in place to help borrowers protect their credit as they get back in the swing of repayments. This allows you to discuss a repayment plan with your student loan servicer before your credit is on the line.
4. Contribute to an emergency fund
Set up and contribute to an emergency fund monthly. Even just a little each month adds up. This can help ensure you have enough money to continue paying your regular bills and creditors on time, even when unexpected circumstances arise. It also means you won’t have to jump to taking out a credit card or loan to pay for the unforeseen.
5. Regularly monitor your credit reports
Staying on top of your credit score and what appears on your credit report helps you determine your creditworthiness and allows you to spot any incorrect or fraudulent activity on your accounts. This way, you can keep track of your credit health and pivot as needed. You can get a free credit report weekly through AnnualCreditReport.com.
Wrap up
Your credit score doesn’t have to be an overwhelming topic. As with any part of life, putting in place good habits can push your circumstances in the right direction. Your credit is no different. Setting a few credit management guidelines can mean reaping the benefits of good credit and saving you money in the long run.
About the Author
Megan B. Shepherd is a personal finance editor at Finder committed to helping Americans navigate the financial world of loans and insurance. Megan’s expertise has graced the pages of Forbes, Fox, Time, Reviews.com, and carinsurance.com, adding invaluable information related to loans and insurance. Megan’s adept knowledge of financial topics has also led to contributions to reputable publications like Nasdaq and MediaFeed, where she intricately dissects and explains personal loans, financial strategies and smart borrowing tactics.
Megan B. Shepherd is a personal finance editor at Finder where she helps people navigate the financial world of loans.
Her personal finance expertise has been featured on Forbes, Nasdaq, MediaFeed, Fox News, Time, Reviews.com, and carinsurance.com, adding invaluable information related to personal loans, financial strategies and smart borrowing tactics.
Megan graduated from the University of Texas at Dallas with a BS in Business Administration with an entrepreneurial focus. She's worked as a certified financial adviser and has earned certificates of completion from A.D. Banker & Company.
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