A credit score, simply put, is your financial profile. Depending on how high it is, it can open up a lot of opportunities for you. It can help you get the lowest possible rates when securing a loan. A good credit score will always prove to be advantageous for any individual.
Banks or lenders tend to use your credit score as a reference to see how capable you are of paying back your debts. More often than not, it’s the most crucial factor in determining whether you will be allowed new loans. However, your credit score is also so much more than that.
Having good credit can help you become a preferred client in many institutions and place you higher on the priority list when making big purchases. If you’re in the market for a new house, whether you want to buy or rent, most realtors and landlords feel more inclined to sell to you than someone else. Getting approved for a business loan will also be a breeze. It’s because they have more confidence in your ability to pay rent or make payments on time.
How Do You Build Good Credit?
You may have noticed that we mentioned that a good credit score could mean your ability to pay back debt. That may sound like you need to rack up debt to build credit, but it is not the entire picture. There are many ways to bring your credit score up without accumulating debt, and here are two examples of the ways that you can do it:
- Get a Credit Card: A credit card gives you a line of credit that you can use for just about anything. You can use it to pay for phone bills, utilities, retail, and many more that accept credit card payments. It’s important to remember that you should maintain a healthy relationship with your card. You must not use it to pay for things you can’t afford because that’s a one-way ticket to amassing a large debt. Instead, treat it as a convenient way to pay in a contactless and cashless fashion. In that way, by making regular payments to your bank, you’ll be able to build good credit.
- Apply for a Credit-builder Loan: Most financial institutions require you to have a credit history that they can refer to before giving you a loan. It’s a dilemma for people who want to build good credit without any credit history. Fortunately, credit-builder loans exist. These loans give individuals with no credit history an opportunity to build credit. Banks will lend you money that you have to pay for in fixed monthly installments. Compared to other loans, credit-builder loans don’t lend you money upfront. Instead, they deposit the loaned amount into a savings account that you can’t access until you have fully paid for it. Once you’ve completed your monthly installments, that’s when you get to withdraw the money.
After Building Credit, What’s Next?
Once you’ve built up good credit, you must maintain and defend it. Building a high credit score is difficult and takes time. But as hard it is to gain, it’s just as easy to lose. One missed payment can have a disastrous effect, knocking down lots of points off your credit score. So make sure that you’re always aware of all the due dates of your bills so that you never miss a payment. You can take advantage of your phone’s calendar and set monthly reminders so that you never forget them or set up automatic payments for your bills through your bank. These preventive measures will make it easier for you to make payments on time, all the time.
Here’s a checklist that will help you practice good credit habits. See which ones apply to you and take note of them.
- Pay your bills on time and never miss a payment.
- Never pay the minimum amount for any of your bills. Your goal is to build good credit and not amass debt. So you should always pay your balances in full.
- Regular use of your credit card can help build your credit fast as long as you remember not to overspend.
- Avoid closing your accounts or canceling credit cards. It can potentially harm your credit score, especially when you already have a high standing.
Reap What You Sow
Once you’re comfortable and you’ve reached your best possible credit score, it’s only fair that you reward yourself by taking advantage of its benefits. Loans will have lower rates, as well as your insurances and many more. With a high credit score, lenders will be coming to you, all competing to do business with you. And with all the additional savings you’ll make through your credit score’s perks, it’ll be easier to save even more money for the future.
That’s the power of having good credit. If you haven’t started yet, it’s never too late. Building credit now is building for the future, and what better time to start than today?