Having good credit is important. You know that already. What you might not know is why credit is important. Your credit score is what dictates all sorts of things in your life. It is what will determine how much of a security deposit you pay on your next apartment. Your credit rating is what will decide the interest rate that is offered on the loan you get for the car you want to buy from Reedman Toll (or whether you get the auto loan at all). It could even be the deciding factor in whether or not you get your next job.
Knowing that it is important is fine, but what matters is knowing how to make sure that your credit is as solid as possible.
Step One: Your Credit Report
You are allowed to get one free copy of your credit report and score from each of the major credit reporting agencies every 12 months. Make sure you take advantage of this. Get your credit report and go over every detail of it as carefully as possible. Credit reports are often full of mistakes and you need to make sure that any mistakes in your report get fixed immediately. Mistakes can drag down credit scores by quite a lot. Fix yours!
After you’ve gotten your report corrected and 100% accurate, it’s a good idea to invest in some credit monitoring (most banks offer this service for a reasonable rate). This way you’ll catch any future mistakes as they happen so you can take care of them before they become problematic. It will also help you get the jump on any attempts at identity theft that might be made against you.
Step Two: Build Better Credit
If your credit is terrible, you can start to repair it by opening up a new line of credit. If your score and history really are awful, don’t freak out. You can open a secured line of credit with your bank using your own cash as collateral. Secured credit cards are a great way to get into the habit of using credit cards responsibly while also improving your credit rating over time.
The key to building good credit with credit cards is to make sure to make your card payments a little bit early and always pay more than the minimum amount due.
Step Three: Learn How to Use Money Wisely
If you’ve had a rough history with using your credit and debit cards, you should switch to the Ramsey envelope method for at least a year. This will re-teach you how to keep your spending in check while also ensuring that your bills get paid on time every month.
Step Four: Maintain That Good Credit
There are a few ways to keep your credit score at a decent number. The easiest is to never charge more than you know you’ll be able to pay off within a couple of months. Continuing to make your bill payments on time is also important. Don’t open up more than two lines of credit at a time (not counting your mortgage and auto loan). This helps you keep your debt manageable.
The real trick to ensuring that your credit is good is to be practical and responsible with your money. Don’t spend more than you make. Pay your bills on time and all of that boring stuff that you can’t believe is true now that you’re all grown up.