Your credit report and credit score are two of the most vital measurements of your financial health.
Properly caring for them puts you in the position to save thousands of dollars during the course of your life. Why?
Because your credit report and credit score play a large role in determining how high your interest rates will be for financial products like mortgages or car loans, not to mention the effects they have on your home and auto insurance rates. An increased credit score has a meaningful and long-lasting impact on your financial health.
Cultivating a credit score above 700 will make anyone a competitive candidate for the best interest rates and scoring credit cards with the best cashback benefits.
Here are four ways to ensure your credit report and score become the equivalent of rocking a supermodel body at the beach:
Make sure you have a line of credit
You can’t establish a credit history without actually having credit. In fact, 15 percent of your FICO credit score is based solely on the length of your credit history.
It’s the easiest portion to do well on, so long as you actually have credit.
The simplest way to do this is to get a credit card early and use it regularly.
A lot of people deter college kids from owning plastic, but college is an ideal time to begin establishing your credit history.
Students can use those four years to build credit history and prepare themselves for life after graduation when a credit report and score will play a major role.
Responsible use of a single credit card can result in 700+ score after graduation, which will make it much easier to find an apartment to rent, get a car loan, or for the over-achievers, get a mortgage.
Student loans are another way of establishing a line of credit if they’re in your name and not your parents’ names.
Using a credit card responsibly in conjunction with student loans will help improve your credit score because it diversifies your types of credit, which accounts for 10% of your score.
It is often easier to get a student credit card than to get a credit card after graduation if you have no credit history.
If you need to establish a line of credit but can’t get approved due to lack of credit history, a secured credit card may be your solution.
With a secured card, you put down a deposit. That deposit amount typically becomes your credit limit.
A secured card proves to the bank that you’re a dependable borrower, and eventually, they may upgrade you to a regular credit card.
Keep your utilization under 30 percent and never max out.
Utilization is the amount of your available credit limit you use.
Let’s say Penelope has two credit cards. One has a limit of $3,000 and the other is $2,000, so her overall credit limit is $5,000.
Ideally, Penelope should spend no more than $1,500 a month on her credit cards to keep her utilization ratio at 30%.
This will make her look like a dependable borrower because she doesn’t come close to maxing out her credit cards.
One option to decrease your utilization is to increase your available credit without spending more.
Penelope applies for another card and gets a limit of $2,500, so she has a total of $7,500 in available credit.
By maintaining her spending habits while making $1,500 in purchases each month, her utilization ratio is now 20%. She looks even more dependable, so her credit score increases.
Pay your bills on time and in full.
Missing a payment is one of the biggest hits you can make to your credit score.
You should pay all your bills on time and in full each month. If you cannot make the full payment on your credit card, at least make the minimum payment.
Missing a payment due date just because you’ll be able to make the full payment a few days later does a lot of harm to your score.
Your credit card company cares about your reliability. Missing a payment due date really hurts your credibility as a good borrower.
Even if you think it makes more sense to pay in full a few days late than paying a small portion on time, the bank doesn’t.
Avoid credit card debt.
In addition to paying on time and in full, you should avoid credit card debt.
Interest rates on credit cards can cripple your wallet and cause you to pay hundreds to thousands of dollars in interest.
If you’ve already landed yourself in some credit card debt, but have a credit score of 680 or higher, consider applying for a balance transfer.
A balance transfer can significantly reduce your interest rates and save you hundreds to thousands in debt repayment.
MagnifyMoney.com offers a simple tool to see how much you could save with a balance transfer.
It’s also important to avoid debt sent to collections. Collections are noted on your credit report and significantly decrease your credit score.
Monitor your report and score.
Once you’ve established your line of credit and have been responsible for paying on time and in full, it’s time to protect your report and score.
Unfortunately, credit card and banking fraud are common. Be proactive about keeping your financial life safe by regularly monitoring your credit reports and score.
You are entitled to a free credit report from all three credit bureaus (Experian, Equifax, and TransUnion) each year.
Go directly to the bureaus or use annualcreditreport.com.
Barclaycard® and Discover® provide their cardholders with their FICO score for free on every monthly statement.
When reviewing your reports, look for errors such as an application for a loan or credit card that you didn’t make.
Your credit report and score are vital parts of your overall financial health, so be proactive and set appointments with yourself for checkups.