All of us start building our credit with a clean slate. Every move, transaction, and application we make drive us further towards a good or bad credit score. While having a credit card is a financial asset, we should also consider good financial practices in maintaining positive standing and developing responsible financial behavior.
This article includes easy-to-understand tips and practices to avoid lowering your standing and earning a bad score. If you want to maintain a healthy relationship with your bank, check out these tips below and enjoy what credit accounts and banking have to offer.
Pay All Your Bills Monthly
The one thing banks and loaning institutions look at is your payment history. Your payment and billing history significantly affect your standing and chances of having loan applications approved. Missed payment or late fees can tremendously affect your score. So, before you apply for a loan, be 100% sure that you can afford the payments.
Banks value clients who are consistent with their payments and financial responsibilities. Anyone who pays their dues on time is more likely to be offered better loan contracts, bonuses, and perks in various transactions.
Pay Your Bills First, Then Enjoy
Part of practicing good financial behavior starts with how you handle your money. Most people work and get salaries, which allows them to divide the money according to their priorities.
Ideally, when you receive your salary, you should prioritize your bills and financial obligations, and whatever’s left will be divided into food and other expenses. Doing this will ensure your loans and dues are being paid on time and prevent your score from dropping.
On the flip side, this may shorten your budget to do the things you love, but it’s better to be on a safer side than seeing your credit score take a hit and paying more than what you have borrowed.
Acquiring New Expenses
Every new installment you make affects the likelihood of you making ends meet. Adding new bills without looking at what you can pay regularly will start a domino effect on late fees and penalties.
Before starting another commitment on loan, double check your budget and see how much you can allocate per month. If you can’t afford another installment, the best you can do is finish your current dues first.
Live Within Your Means
When the cash flow is slow, and the budget is tight, we often resort to loans to keep afloat for the time being. While this helps businesses up to a great extent, it does not go the same for everyday people.
Credit cards are the least effective solution to sustain. They offer loans to pay daily expenses, but these short dues often bite back with the late fees and installments. Instead, try to readjust your budget and live with what you have. Bringing in additional income by doing side-jobs or overtime is also helpful. Selling unwanted items and junk also brings in more income.
Overall, avoiding bad credit scores means adjusting your everyday routines based on your savings. If acquiring a loan is inevitable, this tip would give you more budget in paying the banks on time.
Work Together with Your Creditors
People who have long histories of bad credit often avoid creditors, collections, and anyone from the bank. This kind of treatment puts creditors in a bad light, and people do not realize the potential help you can get from them. After all, behind those seemingly intimidating positions, people are willing to help you better understand and fix your financial situation.
At some point in your life, you experience financial problems that affect your score. When this happens, giving your creditor a call lets you discuss alternate solutions in payment terms and renegotiate deadlines.
Maxing out your credit limits is the biggest reason for a dip in the score. Despite paying it on time, the maxed-out credit limit would still drop your standing.
The best way to go around is to borrow around 30 to 50 percent of the limit. If you have a credit limit of 10,000 USD, the maximum amount you should borrow would be 5000 USD or below. Additionally, use your credit card in emergencies instead of daily expenses. Having fewer reasons to borrow from the bank means lesser obligations in payments and a lesser chance of getting a bad score.
Major life changes affect how we spend and how we loan from banks. And sometimes, the best way around it is to live with what you can. Don’t worry. Get your finances and obligations right, and by living within your means can form a stable credit status and better financial lifestyle.