5 Tips to Become a Credit Savvy Individual
Credit is an essential part of our lives. Whether you are planning to buy a car, a house, or anything else that requires significant financial investment, credit scores always play a vital role. A credit score is a numerical expression representing your ability to repay debts. Nowadays, every financial institution considers credit scores before approving loans, credit cards, or any other types of credit. Therefore, it is essential to become credit savvy. Here are five tips that can help you improve your credit score and reap the benefits of being a credit savvy individual.
1. Pay Your Bills on Time
One of the most crucial factors that impact your credit score is your payment history. Payment history accounts for approximately 30% of your credit score. Therefore, it is essential to pay your bills on time, including your credit card bills, utility bills, and mortgage payments. Late payments can have a significant negative impact on your credit score and can stay on your credit report for up to seven years.
2. Keep Your Credit Utilization Low
Credit utilization refers to the amount of credit you use compared to the total amount of credit available to you. Ideally, you should aim to keep your credit utilization below 30% as it can have a positive effect on your credit score. High credit utilization indicates that you are relying too much on credit, which can leave a negative impact on your credit score.
3. Monitor Your Credit Score Regularly
It is crucial to monitor your credit score regularly to keep track of any changes or inaccuracies. You can get a free credit report every year from the three major credit bureaus – Equifax, Experian, and TransUnion. Reviewing your credit report can help you identify any errors or fraudulent activities, which can hurt your credit score. By keeping a regular check, you can take necessary measures to improve your credit score.
4. Limit Your Credit Applications
Every time you apply for credit, it generates a hard inquiry, which can have a negative impact on your credit score. Therefore, it is essential to limit your credit applications, especially if you are not sure whether you will get approved. Before applying for credit, do your research and only apply if you meet the eligibility criteria.
5. Diversify Your Credit Portfolio
Having a good credit mix can also have a positive impact on your credit score. A credit mix refers to a combination of different types of credit, such as credit cards, loans, and mortgages. Having a diverse credit portfolio shows that you are capable of managing different types of credit, which can improve your creditworthiness.
Conclusion
Improving your credit score is not a one-day task; it requires consistent effort over time. By following these five tips and practicing good financial habits, you can become a credit savvy individual and reap the benefits of having a good credit score. Remember, having a good credit score can give you access to better credit options and lower interest rates, which can help you save money in the long run.
