06 Feb Building Healthy Credit Habits

Maintaining and gaining healthy credit is a journey. It’s integral for lower interest rates on loans, including mortgages, car loans, personal loans, and even credit cards. Healthy credit also opens doors to more favourable credit products with higher credit limits, better rewards programs, and more flexible terms. Also, you get competitive insurance rates and better rental opportunities. So really, maintaining healthy credit is the intelligent thing to do should you want to save money, get better benefits (hello airport lounges), and develop smart spending habits. So, how do you build healthy credit habits?

Going forward, we’ll discuss tips and tricks of the trade to build and maintain healthy credit, as well as develop a thorough understanding of what influences your credit score and actions you can take when striving for financial freedom.

6 Easy ways to build better Credit

These are expert-approved ways to build credit, from professionals with years of experience.

Always pay your instalments on time

Not paying your instalments on time can be incredibly detrimental to your credit. Information about late and missed payments will be placed on the adverse accounts section of your credit score, which will discourage companies and lenders from providing you with finance. This is called delinquency reporting. Once your payment is 30 days late, it gets reported to credit bureaus (Experian, TransUnion, Equifax) and reflected on your credit report.

This negative mark instantly drops your credit score by a significant amount, depending on your previous score and payment history, making you appear high-risk. This translates to higher interest rates, stricter loan terms, or even outright denials for credit cards, mortgages, and other loans. It can impact your ability to secure future credit for years to come. If you’re struggling to make payments, it’s important to communicate with your lender.

The solution? Set up reminders or auto-payments to avoid missed deadlines.

Maintain low credit utilisation

Furthermore, credit utilisation refers to a percentage that measures how much of your available credit you’re currently using. It’s calculated by dividing your total credit card balances by your total credit limits across all your cards. Moreover, a higher credit utilization ratio generally indicates you’re using a larger portion of your available credit, which suggests you might be overextended financially, posing a higher risk of missing payments or defaulting on debt. In contrast, aiming for a credit utilisation ratio of 30% (or even 10%) is beneficial for your credit health. It has a significant impact on your credit score, typically accounting for 30% of the calculation, and can fluctuate depending on your spending and borrowing habits.

How to maintain low credit utilisation

• Monitor your monthly expenses. Budgeting apps and spreadsheets can help you stay organised.
• Know your credit limits. Regularly review the credit limit for each of your cards. This helps you understand your available credit and is key to calculating utilisation.
• Pay more than the minimum. Aim to pay off a large bit of your balance each month, not only covering the interest and a small portion of the principal (initial amount borrowed or invested.) Try to make payments throughout the month to reduce your balance.

Diversify your credit mix

Interestingly, diversifying your credit mix spreads out risk, as you’re less likely to spend a lot on one card. Lenders like to see you can handle various credit products responsibly. Having both revolving credit (credit cards) and instalment loans (mortgages, car loans, student loans) showcases your experience with different types of debt and repayment structures. Remember to manage them all responsibly.

Monitor your credit report regularly

You might be surprised to know that Credit Boost offers a 100% free credit check. It’s important to review your credit for errors at least once a year. A single mistake on your credit report can trigger a domino effect, jeopardizing your access to loans, mortgages, and insurance, and casting a shadow over your financial security.

Minimise hard enquiries

It’s worth noting that there are 2 types of credit inquiries, hard, or regular inquiries, and soft or account review inquiries. Soft inquiries don’t impact your credit score at all and are mostly used by companies, employers, landlords, or yourself to evaluate your creditworthiness and credit health. Conversely, hard inquiries make a dent in your credit score. They’ll most often show up when creditors and lenders check your credit score to see if you’re eligible to take out a loan or insurance. Usually, they stay on your credit score for up to 2 years, showing creditors and bureaus that you’re not financially secure and responsible.

Be patient

What’s more, is that credit scores take time to grow. Think of a tree: the more you water it and give it sunshine, the greener its leaves become and the taller and bulkier it becomes. If you haven’t started to nurture your credit yet, it may be worth it to take out a student credit card or start a store account with an institution like Edgars.

Nurture your credit and it will nurture you

It’s not hard to maintain your credit. It’s all about developing financial literacy and responsibility, checking your credit score, diversifying your credit portfolio, lessening hard inquiries, paying on time, and maintaining low credit utilisation. Anyone can grow and maintain good credit–you just have to treat it well.

Get in touch with Credit Boost today for help from experts with debt review and credit management.