Your three-digit credit score helps creditors and lenders predict the likelihood that you’ll repay money you borrower. The number is primarily based on your habits with credit products like loans and credit cards, but the way you handle your finances in general does have in impact on your credit score. Here are the basic financial habits you need if you want to build good credit.

Living within your means.

Living within your means is key to affording your bills, something that has a major impact on your credit score. Failing to live within your income puts you at risk for missing payments on your credit cards, loans, and other monthly bills. Payment history is 35% of your credit score, which means that falling behind can hurt a lot.

Use a budget to help figure out what you can afford to spend. Track your spending between paychecks to be sure you’re staying on track. Reign in your spending if you’re running out of money and you still have a few days before your next paycheck.

Prioritizing needs above wants.

One way to keep your spending in check and build good credit is to make sure you’re taking care of your needs first. If you spend all your money on things you want, there’s nothing left to pay the important bills – the ones that will affect your credit rating. Plus, indulging in too many of your wants tempts you to create debt, possibly more than you can afford.

Keep your finances organized.

It’s hard to make your payments on time if your bills and other financial documents are disorganized. Come up with a system for keeping up with your bills and bank statements. For example, you might use a bill payment calendar to keep up with your monthly bills, payment amounts, and due dates. Then, refer to the calendar frequently throughout the month to be sure you’re on track with your payments.

>> Download a free monthly bill checklist. Print 12 to keep track of your bills each month of the year.


Make all your payments on time.

Paying your bills on time – ahead of time even – is one of the most important things you can do to build good credit. Payment history is a significant part of your credit score, so paying your bills on time is important. If you’ve checked your credit report, you probably know that not all your bills are listed on your credit report.

Credit cards and loans are regularly reported, but other regular monthly bills like your electric service, cable, and insurance payments aren’t included on your credit report. Don’t skip these bills just because aren’t regularly reported to the credit bureaus.

Habits are contagious. If you’re missing payments on some bills, you’re more likely to miss payments on other bills including those that are listed on your credit report. Missing any bills will trigger incur expensive late fees. When late fees are added, it increases your monthly payment and makes it harder to live within your means.

Once you’re behind, getting caught up could put a strain on your finances that causes you to miss more important bills. And, if your payments get too far behind your account could go into default and in that situation it could be listed on your credit report.

Paying more than the minimum.

Your credit card issuer only requires that that pay a small amount of your outstanding balance each month. This amount is usually 2 to 4 percent of your balance, which is at most $40 on a balance of $1,000. Once interest is added, your credit card balance may actually only decrease by about $25.

Paying your balance down with minimum payments can keep you from having a great credit score, particularly if your balance is more than 30% of your credit limit. It’s best to pay your credit card balance in full each month. If you can’t afford to, aim to make larger payments so you’re using up less of your credit limit and building good credit.

Researching financial products.

Don’t choose financial accounts on a whim. That includes checking and savings accounts, investments, credit cards, and loans. A bad credit card or loan could be difficult to repay. For example, hidden fees and high interest rates could be a struggle to pay back. Even picking a good checking account can indirectly impact your credit score since that account holds the money you use to pay your bills.

Use the internet to research any type of account you’re considering. Compare to similar accounts to get an idea of the best account to open.

Fix mistakes sooner rather than later.

You may not make the right money moves every time. Though you should strive to pay on time every month and stay out of debt, mistakes do happen.

Financial mistakes don’t have to hurt as much if you take care of them immediately. If you miss a payment by a couple of days, make it up before the next due date. Banks report late credit card or loan payments to the credit bureaus after 30 days, which is often around the time of your next due date. Take care of checking account overdrafts as soon as possible to prevent additional overdrafts to your account.

The longer you wait to clear up your mistakes, the harder (and often more expensive) it becomes to clear them up.

Avoid borrowing what you can’t afford to repay.

Many people make the mistake of having the opposite mindset about credit. They believe that credit is for buying things they otherwise wouldn’t be able to afford. Unfortunately, this mindset is what leads to a lot of credit problems. Borrowing more than you can afford leads to high balances and payments you can’t afford. You’re at risk of falling behind on payments if you’ve overextended yourself financially.

Before you take on a new credit card or loan, review your budget to confirm that you have free income to afford another payment. If not, avoid taking on debt until you do.

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