Getting the best credit cards, mortgages and loan rates is an important part of building a strong financial foundation. Having great credit can save you money in interest over time, as well as give you access to the perks and benefits that come with it.
Your credit score is a three-digit number that lenders use to assess your ability to pay back debt. The higher your credit score, the more likely you are to qualify for the best loans at the lowest rates.
1. Pay Your Bills on Time
Paying your bills on time can save you money, reduce stress and improve your credit score. It also reduces the chance of having to pay late fees or penalties on credit cards and other loans.
Keeping track of multiple bills can be a challenge, but it’s important to keep a list of your bills and when they are due. Having a calendar or an app that prompts you when bills are due can help.
For example, many cell phone providers, electric companies and internet service providers offer auto-pay options. This means that your payment can be automatically deducted from a designated bank account.
By taking the time to map out your bill payment schedule, you can avoid costly mistakes and fees that could lower your credit score. By paying your bills on time, you can also build good financial habits that will last a lifetime.
2. Reduce Your Credit Card Balances
One of the most important ways to boost your credit is by reducing your credit card balances. High credit card balances can hurt your credit utilization ratio, which is the percentage of your available credit that you are using.
Typically, your issuers want you to have a credit utilization rate of 30% or less. A high credit utilization can mean you’re at risk of losing your credit.
You’re better off eliminating your balances as quickly as possible to avoid this scenario. You’ll need persistence and self-discipline to reduce your debts, but once you see your balances shrink you’ll be motivated to keep going!
To get started, prioritize your credit cards by identifying each with the highest interest rate and pay that debt first. Eliminating a high-APR debt reduces the total cost of getting out of debt, and it also allows you to focus your cash flow on paying off other debts.
3. Keep Your Accounts Open
One of the best ways to improve your chances with loans is to keep multiple accounts open. This will help you track your spending habits and keep your finances organized.
It also shows creditors that you have a healthy credit mix and are willing to borrow from different types of lenders, which can improve your chances with loans down the line.
Having a variety of credit types open and in good standing can also help you lower your credit utilization ratio, which is 30% of your FICO(r) Score.
You may want to consider opening several savings accounts at different banks, as some offer incentives for new customers. These bonuses can be worth hundreds of dollars, so they’re a great way to save money and earn extra interest.
4. Avoid Closing Accounts
If you have a bank account and have a bad habit of missing payments or making automatic transactions without your knowledge, the bank may decide to close it. This can be frustrating for you and can cost you money in fees and missed bills.
Fortunately, there are many ways to avoid closing your bank account and still keep it functional. One option is to shop around for a new account and move your automatic deposits and withdrawals to your new bank.
Another option is to ask the creditor to remove the account from your credit report. This can be a good idea if you have a long history with the lender and the closed account hasn’t negatively impacted your credit scores.