by Tre Campbell
Good credit can help unlock the door to a brighter future.
That’s not just a metaphor – your credit score is one of the first pieces of information
lenders review before approving you for a mortgage, business loan or other purchase
requiring finance. A strong credit history could help position you as a more trustworthy
borrower.
Think of building credit like practicing good hygiene. The more you maintain good
financial habits and clean up past mistakes, the better your credit can be.
Ashley Kelly, a Chase Senior Business Consultant in Phoenix, offers these nine
important tips to help establish and maintain good credit health.
Check your credit reports
Reviewing your credit report is the first step in finding information that may be affecting
your score. You have a credit report with the three major bureaus. You can access your
Experian TM credit report for free with Chase Credit Journey®.
Monitor your credit score
This three-digit number can be key to your lender’s decision and helps determine the
interest rate offer you’ll receive. With a higher credit score, you may be able to lower
your interest rate. Keep in mind, credit score is just one of the many factors considered.
The five main categories that determine your credit score are payment history (35%),
amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit used (10%).
Pay off delinquent accounts
Bring any delinquent accounts current, or work to pay them off when you are able.
Delinquencies include past due payments, charge-offs, collections or judgments.
Make payments on time
Every on-time payment is important as it helps demonstrate good financial behavior. It
also takes time to rebuild your credit score after delinquencies and late payments.
Avoid new debt
Because hard inquiries can also affect your credit score, try to avoid applying for
multiple lines of credit in a short period of time. Hard inquiries will appear on your report
for two years.
Know your debt-to-income ratio
Debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying off debts. Keep DTI ratios low, as this shows you’re more likely to be able to afford monthly loan payments.
Keep low balances
Paying off your revolving loans every month is beneficial for your payment history while
lowering the total amount owed. Try to keep your balances at or below 30% of your credit limit to help your credit score.
Keep accounts open
Closing accounts lowers your total amount of available credit and increases the
percentage of credit in use, which can have a negative impact on your score and credit
history. Borrowers who have credit available but don’t use it all or pay it off every month
likely appear more credible to lenders.
Know how much you can afford to spend
Understanding your personal finances helps avoid getting into debt you can’t pay off,
which could potentially harm your credit. Knowing and maintaining your personal budget
reduces the chances of missing payments.
Keep your credit clean
Building good credit is a gradual process. While it takes time for derogatory marks to
disappear from your credit report, there are steps you can take now to start improving
your credit score.
As with any healthy routine, once you’ve gotten started, it can be easier to maintain.
Over time, you’ll be on your way to establishing healthy credit hygiene and solid
financial health.
