This Is The Simplest Way To Build Good Credit While Also Saving Money
Building good credit isn’t something they teach you in school. And when you’re just getting started with managing your personal finances, it can get a little confusing. Whatever you do, remember this: Your credit score helps you achieve financial freedom. From how much interest you pay on a loan to your credit limit on your credit card, your credit score helps determine it all.
When it comes down to it, though, building credit is a lot simpler than it may seem. With these two simple steps, you’ll be on your way to an excellent credit score in no time. Plus, you’ll save some money in the process.
Step 1: Sign up for your first credit card.
The simplest way to start building good credit is by signing up for a credit card. By paying for purchases with a shiny piece of plastic, you’ll start creating a credit history, and a good credit history helps you achieve a good credit score.
Now, with little-to-no credit experience, you’ll need to find a credit card that works for you. Many companies like Visa and Discover offer credit cards that are meant for beginners. Shop around and find one that fits your financial situation best.
Pro Tip: Look at what your bank offers. You may be able to sign up for a credit card that connects to your checking account so you can easily pay it off. Plus, your bank may offer a manageable credit limit, a lower interest rate, no annual fee and perks.
Step 2: Pay it off every month.
Once you have a credit card, you need to pay off the balance every month. This is how you build your good credit history and credit score. Your credit score is based on five key factors: payment history, length of credit history, new credit, credit mix and amounts owed. They all directly relate to you getting this new credit card, building a credit history and making payments on time. If you do this every month, you’ll build your credit score in no time.
Pro Tip: Start small. Only pay for minor purchases with your credit card that you know you can afford every month. For instance, if you pay for Netflix, Amazon Prime and gas for your car with this credit card every month, you’ll be able to pay it off in full because these items are already in your budget.
Build credit by staying on top of your finances.
You’ll build credit by managing your monthly credit card accounts like a boss. Three ways to do this include:
1. Reading your annual credit report. You can get a free credit report every year from, yup, FreeCreditReport.com or AnnualCreditReport.com. You can also get one whenever you need it from one of the there three credit bureaus — Equifax, Experian and TransUnion. Keep an eye out for any discrepancies and alert your credit card company, as well as one of the credit bureaus, as soon as you can if you see something off on your credit report.
2. Checking your credit score. There’s a big myth that says your credit score will go down if you check it too often. That’s not true. Keep an eye on your credit score through websites like Credit Karma, NerdWallet, Bankrate and more. Some credit card companies like Discover even give you your FICO Score right on your statement or via your online account.
3. Stick to the 30-percent credit rule. This rule suggests that you never use more than 30 percent of your total credit limit offered on your credit cards. So if you have one card with a $1,000 limit, you’ll want to spend no more than $300 on it every month. No matter what, though, be sure to pay it off in full and on time every month.
Pro Tip: Set up automatic monthly payments for your credit card so that you never miss a due date. You can connect it to your bank account and the credit card balance will automatically be paid off every month as long as you have the funds.
Building credit will save you money.
When you use a credit card to build credit, you might be eligible for perks and rewards, too. Consider all of the credit cards out there and which ones are best for your everyday expenses. Then take advantage of the points and miles. Points might convert into cash, which you can then use to pay down your credit card bill. Miles might help you get a free flight for your next vacation. Whatever it may be, use the perks wisely and you’ll save money.
Credit cards not only offer perks, but also help you achieve a credit score that unlocks better interest rates. For instance, let’s say you’ve built up your credit through this simple two-step process, and now you want to refinance your student loans. With a good or excellent credit score, you may qualify for a lower interest rate on your loans, which could save you even more money every month.
A credit card could be your key to building credit. As long you’re mindful of your purchases, due dates, fees and credit limit, you’ll be able to manage your credit like a boss and unlock a great credit score.
Sign up for Savvy Saver by Swirled, our newsletter featuring budget hacks and important (yet fun) financial info. Saving money just makes cents!
Sign up for our newsletter.
Say hello to the best part of your day.