Everyone likes to have nice things. Unfortunately, few people have the means to purchase the things they want when they find them. Luckily, that is why they invented credit. Using different types of credit, like loans and credit cards, shows creditors that people can handle different financial situations.
People who want to increase their credit scores, or those who simply want to develop better money-spending behaviors, should start by establishing these three credit habits:
1. Make payments on time
Credit scores measure the likelihood of paying back debts with some timeliness. Making payments on time is perhaps the best way to build credit. In fact, the on-time payment percentage is one of the most highly-weighted factors in determining credit scores. This shows creditors and lenders that people are responsible with their debts.
They should develop their own system of reminders to help them pay on time. One of the most effective methods is to write down the amount of the bill and the due date on a calendar or in a place they look regularly. They could also send themselves an email or text reminder if that is more convenient.
2. Contact creditors if you might miss a payment
When unexpected things come up, people should contact their creditors and talk to them about it immediately. Some creditors are willing to give extensions or find other alternative solutions like changing the due date to a more monetarily convenient time. However, if people are financially able, they should consider setting up automatic payments to help eliminate some of the stress associated with making payments. After all, one late payment could hinder credit for years.
3. Pay as much as possible
CreditSoup.com said, “While having a credit card balance isn’t necessarily a bad thing, it is better for people to pay off the full balance every month as this means unnecessary interest charges won’t continue accumulating.” People should try to pay the full amount each month, and they should definitely avoid just paying the minimum amount. Making payments that cover the majority of the debt is a good indicator that they are able to repay what they borrow. It is also a good habit to practice so people keep up-to-date on their budget and avoid spending more than they can pay back.
4. Spend no more than necessary
Avoiding credit cards and taking out loans altogether won’t help if people are trying to build their credit. However, those who regularly spend outside their means just build more debt for themselves. This also shows lenders and creditors that they are financially irresponsible. If they want to be seen as a responsible borrower (so they can get new credit), they should only spend and borrow what they can afford to pay back.
This is a practice in frugality and patience. People don’t need everything they buy, and, most often, the things they don’t need sit around and collect dust. Chances are, the things they do need can be found at cheaper prices if they put the effort into finding them. When people do borrow money to buy something they need (or want), they shouldn’t borrow more than thirty percent of their monthly income.
Those who want to practice good credit habits should talk to their lenders about keeping their credit limits at reasonable levels. They should also avoid maxing out their credit cards and stay within their personal limits. They should make a budget they can commit to so lenders see them as people who don’t have trouble paying back what they borrow.
5. Avoid borrowing outside of your means
Those just starting to build their credit should avoid accruing too many credit cards. These people should start with one card and try to make their payments in full. If they find they can handle another card, they can try taking on more responsibility. People with too many new credit cards can see it have a negative impact on their credit score.
People who want to develop better credit habits should aim to pay their bills on time and in full and, above all else, spend no more than they need to. They should also put a little money from every paycheck into an emergency fund to cover their expenses should an emergency arise. No one knows what will happen tomorrow, but building debt is certain to keep one preoccupied with yesterday.