Ever wonder how people with good credit manage to score high in this financial number? It doesn’t come by magic, and they don’t have an in with Equifax. They create it by building positive credit history over the course of their lives while simultaneously keeping negative marks off their consumer file.
Unfortunately, positive history isn’t as straightforward as you’d like, and setting good habits may not come as naturally to some people as others.
But you’re in luck. Whether you’re trying to qualify for a personal line of credit soon or you’re wanting to monitor your credit score, these tips will help you manage your finances better.
1. Keep a Low Utilization Ratio
Your utilization ratio — which shows how much of your available limits you use — is an important gauge of your finances. Making up 30 percent of your credit score, it’s the second biggest factor impacting this financial stat.
Having a low utilization ratio is one of many ways you may manage your credit history. It indicates you seldomly dip into a line of credit or credit card, and when you do, you pay off these bills as much as possible.
A high ratio, on the other hand, suggests you’re using these accounts often and regularly carrying over a balance. And in the financial world, this spells bad news for your credit history.
Generally, the lower you can go, the better, keeping your ratio below 30 percent for the best impact on your finances.
2. Use a Line of Credit in An Emergency
Keeping your utilization ratio low is easier when you change the way you think about your line of credit. Stop thinking of it as an option in your everyday budget that covers expected bills or helps you afford your wedding plans.
Instead, start thinking of it as an emergency backup in an unexpected crisis. If a medical bill comes out of the blue, and you don’t have enough savings to cover it, a line of credit may bridge the gap.
3. Use Credit Cards Wisely
Sometimes, you’ll have to use credit when it isn’t an emergency. This is when the plastic in your wallet may come in handy. A credit card is often the only way you can book a hotel, arrange airfare, or shop online.
Here are two simple rules to remember the next time you’re in this situation:
1. Only ever make a purchase you can afford
The balance you carry over may impact your utilization ratio, so it’s important you have the cash to pay off a purchase in full to limit its effects.
2. Pay your bills on time
Adjust your budget, so you have the cash to pay bills on time by your due date. If you tend to forget about this important date, program it into your phone to receive a notification a few days before it’s due.
Bottom Line
Adding positive history to your consumer file isn’t always a fast or easy process. It can take time and serious effort as you get used to managing your finances in a way that align with your goals. But with the right attitude and financial habits, it is possible. Stick with it to see what change you can bring!
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