How to Build and Maintain Good Credit

Credit Tune up Welcome back to credit fitness club. Are you ready to build on what we started in our last session and pump up your credit awareness even further? Awesome. Let’s do this. Previously, we talked a bit about your credit score. This number is important because it can affect your ability to borrow money for all kinds of things – a home, transportation, education, business ventures, and more. Generally speaking, your goal should be to keep your credit score as high as possible by sticking to healthy spending habits. And if your score is lower than you’d like it to be, there are steps you can take to give it a boost and get yourself back in shape. The most commonly used credit scoring system is called FICO. Several factors go into the calculation of your FICO score. Let’s take a look at a few of the big ones. How’s your payment record? Do you consistently pay your bills on time? What’s your total debt? How much credit are you already using? How long is your credit history? Have you been using and paying back credit accounts for many years or are you new at it? Other factors might include the types of credit accounts you’ve used, the number of accounts you’ve recently opened, and any steps you may have taken to resolve past credit problems, such as debt consolidation. When your credit score is healthy, you’ll enjoy a few key benefits. For one, you’ll be approved for loans and credit accounts faster than those with lower scores. For another, the terms and amounts of credit available to you will be better and more substantial. Let’s take a minute to differentiate between two basic types of credit – revolving credit and installment credit. Revolving credit refers to an account that gives you access to a maximum amount of money, a credit limit, which you can borrower against and make payments toward the balance each month. Most credit cards are considered to be a form of revolving credit. Installment credit refers to loans in specific amounts that are often attached to specific purchases – a home mortgage or a car loan, for example. These loans are generally repaid on a fixed schedule with an agreed-upon rate of interest. For both revolving and installment credit accounts, it’s important to make payments on time to maintain a healthy credit score. Avoiding high monthly balances on revolving credit accounts is also good for your score. If your credit score is sub-par, don’t despair. It’s never too late to take action and restore your credit. It may not improve overnight, but by getting back into healthy habits, you’ll gradually put yourself back on track. Make payments on time. Late or skipped payments are among the worst things for your credit score. Don’t open a new credit account to pay off another. Frequent balance transfers between cards can negatively affect your credit rating. Work with a non-profit credit counseling agency to help get your debt under control. Some agencies can actually help negotiate lower interest rates to help you pay down your debt more quickly. Okay, nice workout. Why don’t you hit the showers. In our third session, we’ll be taking a closer look at how your credit card habits can affect your financial fitness. Stick with it – you’re looking great.

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