Good credit is the cornerstone for your financial health. It affects everything from getting a loan to getting a job and even renting an apartment. This guide explains the importance of good credit, will provide helpful tips for building and improving credit. We've also included simple ways to maintain responsible credit habits that’ll help you keep good credit.
Why Good Credit Matters
A credit score reflects your reliability as a borrower and trusted individual. It's the gatekeeper for getting access to funding for financial goals like owning a car, buying a home, or furthering your education and career. Understanding how to build, repair, and maintain good credit is critical for securing a stable financial future.
Impact of Good Credit vs. Bad Credit
- Getting a Job: Some employers may view a good credit history as a sign of reliability and responsibility. Having bad credit could jeopardize opportunities for landing your dream job.
- Renting an Apartment: Landlords typically prefer tenants with good credit to reduce the risk of missed payments. Having bad credit may result in you paying more for housing costs, for example, like needing a larger deposit.
- Getting a Credit Card: Good credit can qualify you for lower interest rates and higher credit limits. Having less than perfect credit can lead to higher rates and fees.
- Obtaining Loans: With good credit, you'll likely be able to secure loans with lower interest rates and for better terms, saving you money over time. With bad credit, you may experience higher interest rates which could lead to financial strain.
How to Build Credit or Repair Credit
Whether you’re beginning to build credit or have a few improvements to make, the best first step is knowing how to get started. Next, we'll show you how to easily incorporate simple financial habits into your daily routine.
Building Credit - Getting Started from Scratch
With a blank slate, you can build credit the responsible way and using good financial habits that will positively impact your credit, finances, and your future.
Here are a few practical ways to build credit:
- Make Practical Purchases: Use a credit card for simple purchases and be sure to make payments on time or payoff the balance in full each month.
- Get a Credit Builder Loan: You aren't required to have the funds in your account to secure this type of loan. Proceeds are deposited to your account and frozen as security for the loan. Once the loan is paid in full, then the funds are released to the borrower.
- Get a Share Secured Loan: A Share Secured Loan uses your Savings Account as collateral. The money in your account is frozen (but still earns interest) until the loan is paid in full. With a Shared Secured Loan, you’ll be building credit and your savings.
- Use a Co-Signer or Co-Borrower: If you have difficulty getting approved for credit on your own, consider adding a co-signer with good credit to help you qualify. A co-signer or co-borrower will also be financially responsible for the loan, so be sure that payments are made since it will impact both of your credit scores.
Repairing Credit - 5 Tactics for Success
If repairing credit is your goal, these tactics can help you become free of financial burdens and restraints.
1. Check Your Credit Report & Correct Errors
- Request a free copy of your annual credit reports from Equifax, Experian, and TransUnion through AnnualCreditReport.com.
- Review your reports for errors or inaccuracies. Be sure to address any corrections that need to be made with the credit bureaus. Common errors include incorrect personal information, accounts that don't belong to you, and inaccurate payment history.
2. Make Timely Payments & Pay Down High Balances
- Payment history is the most significant factor in your credit score. Ensure you make all payments on time, every time. Set up automatic payments or reminders to avoid missing due dates.
- High credit card balances can negatively impact your credit utilization ratio. Create a plan to pay down balances and aim to use less than 30% of your available credit.
3. Negotiate with Creditors
- If you’re struggling to make payments, contact your creditors to discuss your options. They may be able to help with an alternative plan that can prevent accounts from going into collections, which can hurt your credit score.
- Peach State's members can get assistance with this from BALANCE, a financial education and counseling service that's FREE if you’re a Peach State member!
4. Avoid Closing Old Accounts & Limit New Credit Applications
- Length of credit history impacts your credit score. Keep old accounts open, even if you're not using them, to maintain a longer credit history.
- Only apply for credit when necessary and consider spacing out applications.
5. Diversify Your Credit Mix
- Managing different types of credit (such as credit cards, installment loans, or rent) demonstrates your ability to handle various financial obligations which can help raise your credit score.
- Consider getting a Shared Secured Loan and make consistent and timely payments. By making regular payments you can establish a record of on-time payments and demonstrate financial responsibility.
Easy Tips for Maintaining Good Credit
- Use Credit Sparingly: Limit use of credit cards and pay off balance in full each month.
- Make On-time Payments: Late or missed payments can hurt your credit and limit future borrowing opportunities.
- Keep Balances Low: Don't exceed 30% of your total available credit.
- Monitor Your Credit Report: Check your credit report annually for errors and and correct inaccuracies immediately.
- Build an Emergency Fund: Save three to six months' worth of living expenses for unexpected expenses. This will help reduce reliance on credit cards and loans.
- Become a Lifelong Learner: Improving your financial literacy can help you make better financial decisions and avoid common pitfalls.
Secure Your Credit's Future with Peach State
Having good credit is essential for creating a strong financial future and opening doors to new opportunities. Whether you're at the starting line and building credit, or on the road of improvement, Peach State can help no matter where you are in your journey.
By understanding the importance of good credit, knowing how to build or repair it, and how to preserve your hard work, you'll be able to achieve financial stability and security for a better life. Contact us today to start creating a healthier, brighter, and more secure financial future.
