In Tips & Advice

Do you keep track of your credit score? How about your money? Not just the things you spend money on, but the ways you manage and control your cash flow? How you use money has an effect on your credit score. Throughout your life, it’s important to build and maintain a high credit score to assure financial well-being. The good news is you don’t need a degree in accounting to get a good grade on your credit. Here are some simple, easy steps to take to help.

What is a Credit Score

Do know what a credit score is, or how it is calculated? You should. It can determine the quality and type of credit you receive for things like buying a home or a car. It’s a reflection of how “credit worthy” you are and is determined by an analysis of all your credit files  and takes into account the following:

  • 35% Payment History – Do you pay your bills on time?
  • 30% How Much You Owe – How much you owe on each account, and in total.
  • 15% Length of Credit History – How long you’ve had credit.
  • 10% New Credit Inquires – How often you apply for new credit.
  • 10% Types of Credit – Credit cards, car loans, retail accounts, etc.

Scores range from 300 to 850 or higher. A score in the mid 600 range is considered acceptable. Below that is considered risky. Having good credit habits and spending behaviors will help build and keep your score high.

Watch Your Credit Score

The Fair Reporting Act (FCRA) requires each of the three national credit reporting agencies to give you a copy of your credit report, at your request, once every 12 months. You should take advantage of this right to know your score, what’s affecting it and to check it regularly. You can get a copy of your credit report here: Once you know  your score, the next step is developing good money and spending habits to keep it high.

Pay All Your Bills on Time

Remember! Payment history is 35% of your credit score. Even if you have plenty of money in the bank, it can’t be overstated how important it is to pay all your bills – credit cards, utilities, TV, internet, rent, mortgage – on time. Frequent, consistently late or missed payments can bring your credit score down.

Set Up Automatic Payments So You Never Miss a Payment

You can likely set up all your credit accounts to be paid automatically from your primary banking account. It’s a great way to make sure you never miss or have a late payment on your regular bills. However, be mindful if you use auto pay for credit cards, which will often have widely varying balances. You can set up most if not all of your accounts to send you an automatic email or text alert to remind you when the bills are due. This can help you plan to make sure you have enough money in your bank account to cover what you owe.

Monitor Automatic Bill Payments and Subscriptions

We tend to forget about recurring charges to a debit card or automatic withdrawals from a checking account. These could be for subscriptions, memberships or services we’ve forgotten about or no longer use. Some may be the result of “auto-renewal” policies that automatically extend services indefinitely. One easy way to get these kind of expenses under control is to visit Trim, a free service to help identify and cancel unwanted subscriptions.

Use Credit Cards Wisely

Used responsibly, credit cards can help you establish, build and even improve your credit score. They provide a high level of protection against unauthorized charges. Most offer rewards for air travel, discounts for products and services, or even give you cash back. But you have to be careful. They can have high interest rates, which isn’t a problem if you pay your bill – your entire bill – on time. Be careful with every day purchases so you don’t charge more than you can afford. If possible, completely pay your bill each month and avoid interest charges. In fact, you don’t even have to wait for your bill. With online payments, you can transfer money from your bank account to your credit card for purchases soon after you make them. Or pay off your weekly purchases on the weekends. If you don’t have the budget discipline to use credit cards for every day purchases, consider having one card dedicated only for utilities, mobile phone, internet, insurance and other predictable monthly bills you always pay each month. Just that alone will help build and strengthen your credit.

Don’t Spend More Than You Earn

Sounds simple enough. But do you really know how much you spend each month compared to how much money you earn? Have you ever made a list of every single purchase, from monthly bills to groceries to typical entertainment expenses, to know what you actually take home? If not, try it. You might be surprised what you find on your list. Is it all essential? Does it all add value? Are there expenses you can cut without impacting your quality of life? Hopefully what you spend is less than what you earn. If not, it’s time to cut expenses. If you’re earning more than you spend, good for you! Hopefully that extra money is going into a savings or investment account.

Monitoring and building your credit through practicing smart money management is a habit you that really pays off – especially if your plans include owning a home. If you are considering buying a new home, or refinancing the home you’re in, contact a PrimeLending loan expert who can show you loan options to fit a wide range of credit scores. Or how your current credit score could get you an even lower interest rate.

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