Start the Year Off Right: Here’s Your Credit 101 Download

Credit Score A shot of an African American businesswoman working on her laptop at an outdoor cafe

Imagine buying a brand-new house that’s fully furnished and designed specifically for your taste. Pulling up to the driveway your anticipation is rising just thinking about where you are going to create new, lasting memories. There’s one problem – as you attempt to use the key you were given; it doesn’t fit the lock on the door. This, my friends, is why credit is so important. The life you desire to live does not have to be out of reach or mere fantasy. It’s not something that only a specific type, group or person can achieve. These tools can be applied regardless of your financial status, and your financial future can unlock limitless opportunities.

Establishing and maintaining credit isn’t just about being able to buy your dream car or home. It also demonstrates to future creditors that maintaining a solid credit history is something very important to you. Certain utility bills such as gas, electricity, and water may require an increased deposit if the score is less than desirable. Potential employers may think twice about extending a job offer if your credit history showcases financial irresponsibility. If entrepreneurship is a personal goal, financial lenders must be confident in your ability to make timely payments while also achieving personal success within your business.

For a FICO credit score, there are five components that make up your number and even though the percentage differs for each category, all are actually very imperative to establish a healthy credit score. Creating more awareness and applying these practical, tangible adjustments will make your personal credit score goal achievable.

Payment history indicates to creditors if you are a lending risk based on the timeliness of payments – 35%

Paying your bills on time or before time is a great way to ensure that your payment history stays intact. Making sure credit accounts are up to date along with a positive payment past puts creditors at ease, reassuring them the money borrowed will indeed be returned in a timely manner without any hiccups.

Credit Cure: Automate as many bills as possible. This is the most effective way to guarantee bills are always paid on time. Also, this alleviates the burden of you having to remember due dates for every single bill. Using this feature does not excuse monitoring your bank accounts. Be sure funds are available to avoid racking up any unnecessary insufficient fund fees with your financial institution.

The amount owed is the total sum of money you’ve borrowed – 30%

A large number of accounts with high usage communicates to lenders you may have issues with making payments in the future – especially when life takes unexpected turns. Again, be sure to make all payments on time. If possible, set a personal goal to pay off your credit card balance every month or allocate extra funds to your mortgage. This shows lenders you are active and engaged with your financial blueprint.

Credit Cure: In the instance, you have a windfall or an unexpected bonus, allocate some funds to one of your credit accounts. This is a great rule of thumb to apply because if your salary increases, you’re more likely to tackle outstanding debt versus increasing the amount you owe. Remember, the good financial habits you create will follow you – regardless of any income fluctuations.

Length of credit history begins the first time a line of credit is opened – 15%

Just like wine ages with time, so does your credit score. Maintaining that old credit card, you opened up years ago may be solid evidence that you have the ability to be financially responsible. As tempting as it may be to close the account, this can adjust the age of your oldest credit account, reflecting in a potential drop in score.

Credit Cure: Use an older credit card to make small purchases such as gas or groceries and pay the amount in full before the next billing cycle. This simple task reinforces your capability to leverage all credit accounts. Lenders will be able to make clear and sound decisions due to strong credit history.

New credit is determined by the last date of your most recent line of credit – 10%

Too much new credit in a short period of time can affect your score. However, this isn’t to scare you from opening up a new line of credit. For example, if you are planning to purchase a home, consider refraining from any other new installment loans. A few new credit accounts at once increases the risk of your inability to pay back what was borrowed. One key to financial success is being able to properly balance your credit portfolio.

Credit Cure: Evaluate your credit portfolio. When is the last time a new line of credit was established? If you’re a homeowner, a credit card from a home improvement store to purchase essentials definitely can come in handy for appliances, repair needs, and renovations.

Credit mix is shown by the various types of credit in your credit history – 10%

How diverse is your credit portfolio? A reflection of credit cards, student loans, car, and mortgage loans shows you are able to manage different types of credit effectively over time without letting any slip through the cracks. We are often able to multi-task many things in our lives, and creditors want to be sure this same principle can be applied within your finances.

Credit Cure: Think about having a “cocktail” of credit history. A small personal loan, credit card and student loans are a few of many that could be within your portfolio. While I am not advising opening lines often, credit bureaus see this activity as favorable.

Using these credit cure tips mentioned may help you get well on your way to not only implement simple solutions for effectiveness but mastering each credit category. Remain steadfast while also being patient; creating new financial practices take time. Once you’ve gained momentum you will be able to see the fruits of all your labor to improve the quality of your financial journey!

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