The number one rule of responsible credit use is to always pay your bills on time! Late or missed payments have a big impact on your ability to secure new credit. But, there is more to being a better borrower than making timely monthly payments. Lenders consider the full financial health of an individual who is applying for a credit product, so you will want to make sure that your credit portfolio isn’t lacking in any key areas.
Here are some positive habits that you should focus on developing when managing credit:
Borrow only what you need! With all types of credit, make sure that you aren’t borrowing any more than what you truly need. Always consider the impact that swiping your plastic can have on your future finances.
Pay your credit card bills in full every month. Carrying a balance on credit cards can be tempting, especially since minimum payments are usually around 1-3% of your total balance.
Don’t ignore your service agreements. While your utility company, or landlord probably isn’t charging you interest, late or missed payments can be reflected on your credit report. Your account can even be sent to a collection agency (which is very bad for your credit) if you fail to pay for long enough. Always pay your bills on-time.
Build a budget. Developing and sticking to a realistic personal budget will help you to better understand what you can and cannot afford and can even help you to plan and save for large future purchases, like a house. See here for our budget planner
Use no more than 30% of your available credit limit. This is really important for credit cards and personal loans. You should aim to use no more than 30% (but try for less) of your available limit each month. Even if you pay your bill in full every single month, if a lender sees that you are using most or all of your available credit, they will assume that you need all of that credit.
Focus less on your credit score, and more on developing positive, lifelong habits. You are more than a number, and it is more important to be in good financial health than it is to have a perfect credit score. Work on reducing your spending and eliminating your debt.
Keep in touch with your creditors. Let them know immediately if you are experiencing problems keeping up with your payments. They can and they will help.