Solid credit and a good credit score are among the most powerful ways to build wealth and ensure your financial independence. According to Experian, good credit lowers your overall cost of living by reducing interest on loans and premiums on insurance and utilities. Let’s look at five credit tips that could help shape your financial future.
How Good Credit Makes a Difference
Anytime your credit score dips below 620, you’ll end up paying an average of $3,400 more per year in higher-interest-rate loans and premiums on insurance, utilities, rent, and more when compared to someone with a good score, according to a Bankrate study. That’s just over $283 per month. With a little work, polishing your credit is a solid financial move.
- Make Your Payments Early: Instead of paying a bill on the due date, make that payment a week early. Your statement balance may appear lower to the credit bureaus, reducing your utilization. This can help improve your credit and credit score as that utilization improves even more.
- Negotiate for a Better APR (Annual Percentage Rate): Once a year, call the financial institution(s) that issued your credit card(s) and ask for a drop in the APR. This can save you money over the long term, reducing your loan-to-income ratio. The money you save can also allow you to build a savings safety net for financial emergencies.
- Get a Credit Builder Loan: If you’re just starting out or if your credit has been damaged over time, apply for a small credit builder loan. These loans use your savings as collateral. As you make payments back to yourself (minus small fees), the credit bureaus are notified of on-time payments, and your overall credit gets a possible boost.
- Employ a 10-25 Utilization: As you use your available credit, your utilization percentage increases. To ensure a consistent score, keep that utilization at or below 30%. To boost your score, only use 10% of your available card credits and 25% of your overall available credit. Need help with the math? Add up your total available credit and divide that by the total amount of credit you are currently using. This will give you your utilization percentage.
- Just Say NO to Retail Credit: Getting 20% off a single purchase sounds good, but those store charge accounts can eat away at your credit rating. That’s because those accounts offer a lower limit, which can make it appear that you have too many credit accounts and a low overall available credit. This can negatively affect your score.
Boost Your Financial Wellness
More Financial Wellness Matters blogs on topics ranging from financial self-care to protecting your financial health are coming soon. Twice a month, we’ll dig a bit deeper into the relationship between financial health and overall well-being, shedding light on the behaviors and beliefs that drive money relationships. With simple tips and proven insights, we hope to enhance your financial well-being and help you live a healthier, happier life.