1. Understanding Credit
To build a solid foundation for credit and wealth, it’s important to understand the fundamentals of credit and how to build it. You must review your credit reports from each of the three major bureaus (Transunion, Equifax and Experian). Credit scoring is also important to understand because this rating impacts your financial life so much. It’s important to note that all credit scores are not equal – most banks measure you by your FICO scores, so make sure you know what score they are selling you! To get started, obtain a free copy of your credit reports from annualcreditreport.com or from a credit monitoring service to review them for accuracy.2. Establishing Good Credit Habits:
Developing good credit habits is key to building a solid credit foundation. Familiarize yourself with the factors that influence your credit score, such as payment history, credit utilization, length of credit history, and credit mix. Most importantly, pay your bills on time. Payment history is the largest percentage of your score, so a late payment can significantly reduce your credit score. Keep credit utilization low (below 30%) by using only a portion of your available credit. Also, avoid opening multiple new credit accounts simultaneously, as it can signal increased credit risk through adding new inquiries.
3. Utilizing Credit Responsibly:
While having credit is important, it’s equally crucial to use it responsibly. Make purchases within your means and aim to pay off your credit card balances in full each month. This demonstrates responsible credit usage and helps you avoid unnecessary interest charges. Though may not be possible every time, at the very least work to pay it back down to a healthy percentage. Avoid maxing out credit cards or taking on excessive debt. People underestimate how much credit scores drop when credit card usage goes up!
