Deciding to build credit for yourself better positions you so you can have access to better opportunities
It’s never too soon, or too late, to start learning more about financial literacy or become more financially independent. In addition to setting certain financial goals for yourself in 2022, you should also work on building better credit in order to be truly empowered and independent.
In order to build credit for yourself, here are some tips and recommendations that are important to hold on to:
Prioritize timely bill payments
Seems simple enough, right? You’d be surprised at how many people struggle with this and how deeply it actually affects your credit score. Late and delayed payments reflect poorly on your financial management and capabilities, making it seem like you are not worth taking a chance on. Bill payments come up to 35% of your FICO score and should be prioritized. A simple way to do that is through automated payments that deduct the amount without your approval. This also gets rid of bill payments that are due before you have a chance to spend your cash!
Get a secured credit card for yourself
A secured credit card is one that has a cash deposit paid against it as collateral and typically has a lower spending limit. The card is ideal for letting you build credit as you go and enables you to do just that while curbing your spending limits. Aim to stay under 10% of your credit utilization ratio as a way to reflect better financial practices.
If you haven’t had a credit card before, another convenient way to build a line of credit is by piggybacking. Become an authorized user for a parent, spouse, or any other credit card, and have their spending and timely payments also reflect positively on your report. It’s important that the person you choose is responsible.
Have a debt-reduction strategy in place
Once you have a stellar credit history and an improved score in place, you’re likelier to be approved for building a line of credit with a trustworthy organization such as a bank. Be sure to consider the collateral and any drawbacks in your particular situation; whether it’s a personal line of credit (LOC) or home equity, it helps to know what’s at stake.
This includes higher interest rates and charges, too, so be prepared to spend that amount over the repayment period and its variability. Banks may not be overly keen on approving personal lines of credit but may be more willing for business purposes and applications.
Set the amount that you can borrow
Since LOCs are a lot more flexible than traditional loans and may have a higher borrowing limit, it’s tempting to continue borrowing against that collateral. However, it’s just as important that you have a repayment plan in place and a cut-off limit to how much you can borrow. Exceeding that or being unable to repay installations and dues will negatively affect your credit score and dampen your efforts for improvement.
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