Overview:
Learn nine essential tips to build good credit hygiene, from reviewing credit reports to managing debt wisely.
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.
Shakima Figuera-Collins, a JPMorgan Chase Community Manager in Brooklyn, offers these nine important tips to help establish and maintain good credit health.
1. 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 ExperianTM credit report for free with Chase Credit Journey®.
2. 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%).
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
For informational/educational purposes only: Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. Information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. JPMorgan Chase & Co. and its affiliates are not responsible for, and do not provide or endorse third party products, services, or other content.
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