The idea that “Cash is king,” but for many splurges and large purchases, establishing good credit is likely a necessity. While the prospects of qualifying to purchase the latest top-of-the-line vehicle may motivate some, good credit can also mean having access to the basics for many. For those with low credit, for example, young adults or those recovering from debt, building credit may seem like a challenging feat. However, by using some helpful strategies, it is possible to build credit and become eligible for many major purchases and programs.
The Importance of a High Credit Score
Having high credit can significantly improve your ability to access not only certain luxuries but necessities. Having a high score has multiple benefits such as the following:
- Lower interest rates overall
- Approval for business loans for entrepreneurs
- Better interest rates and options when purchasing a car
- Approval for buying a home
- Opportunities for higher credit card limits and exclusive rewards programs
- Approval for rentals
- More favorable background checks during job interviews
Knowing how much a credit score can impact various aspects of your life, it’s no wonder why it is important to build it and keep it up.
Opening Credit Cards
While you may not be able to get approved on your own, it is still possible to get things started with a credit card. Opening an account with a co-signer with good credit history can give you access to lower interest rates and higher limits.
Even if you don’t intend to max out your credit cards, having a high credit line can be helpful since it looks more favorable to have a lower percentage of use compared to the total credit line. Use below 30% is ideal for establishing good credit. Once you have established your own credit line, consider taking advantage of offers for credit increases, necessarily to spend more, but to bring down your percentage of use.
Someone just starting out might not always get the top-tier options or the best interest rates, but regardless, it is critical that whatever payment programs signed up for are taken seriously. For example, establishing credit with a car, even a starter one, or any other purchase that requires financing a is a great opportunity to display a good history of being a reliable person with which to conduct business.
Avoiding Excessive Inquiries
Many people do not realize that excessive credit inquiries can chip away at their credit scores. Since that is the case, it is important to be selective with the type of accounts and programs you choose to apply for. It can be wise to avoid multiple general and store-specific credit cards that you don’t plan to use regularly after sign-up incentives.
A good rule of thumb is to only allow credit checks for things you are planning to commit to. In addition, even frequently checking your own credit can count as an inquiry so be sure to take advantage of apps and other programs that allow you to check without docking any points from your credit score.
Establish Good Payment Habits
Many simple behaviors will contribute to whether your score goes up or down. Regardless of the contracts you’ve agreed to, it is important to stick to your agreed terms and pay off all amounts due in a timely manner. Even one missed or insufficient payment is enough to cause your number to decline dramatically. Consider some of the following strategies so you never miss a payment:
- Setting alarms or reminders for upcoming payments
- Time payments shortly after paycheck deposits or paydays to avoid insufficient funds
- Take advantage of auto payment features so your minimum payment is always met
- Avoid having too many accounts that need to be checked
By following these strategies and being a conscious buyer, anybody can develop good habits to bring up their credit score. While it may seem challenging at first, these habits can become second nature and pave the way for greater opportunities.