Most people appreciate the importance of financial wellness. Money worries can cause major stress, but understanding how to manage your money, live within your means, and stay relatively debt-free can have a positive effect on your emotional and physical health.
Financial wellness includes building and maintaining good credit, which is important for more than just borrowing money. Here’s why good credit matters for your finances and your peace of mind, as well as how you can attain a positive rating:
Good credit matters
Solid credit, contained within a credit report and reflected in your credit score, demonstrates your financial responsibility. It affects your ability to:
Secure home, auto, and educational loans
Qualify for a credit card
Obtain lower interest rates on loans
Receive favorable rates on insurance policies
In some cases, get hired for a job
With so much of your financial wellness at stake, you should have a general idea of your credit history and, in particular, what your credit score is and how it’s calculated.
Cards in which the issuer and the network are the same (e.g., American Express, Discover)
A Visa or Mastercard issued through a department store (e.g., Best Buy, Target, Macy’s)
Secured credit cards, which require you to provide a refundable deposit that becomes your card’s credit limit
Once you have a credit card, you can use it to make purchases or pay recurring bills. You can also add it to your mobile wallet apps such as PayPal, Apple Pay, and Google Pay.
If you aren’t interested in a credit card, another way to establish credit is with an auto loan, a starter loan, or a personal loan. Even a small loan with a fixed monthly payment will help you establish credit.
Building good credit
To maintain a good credit score, pay your bills on time. It’s best to pay off your balance in full each month. However, if you must carry a balance, it’s a good practice to have a plan to pay it off within a short period of time. This demonstrates that you can handle credit responsibly.
However, be careful not to use all the credit available to you. Credit utilization is the percentage of debt you’ve used compared with the amount you could potentially take on. A low credit utilization rate improves your credit score. Generally, 30 percent is considered the threshold, meaning if you have a $10,000 total limit on your credit cards and loans, you shouldn’t carry more than a $3,000 balance.
Being prepared with good credit will make it easier to borrow money when you need to. Your credit union can help. 1st United Credit Union offers BALANCE Financial Fitness, an educational and financial counseling program that can help you fix your credit if it’s broken. We also offer credit cards, traditional loans, and share secured loans, that can help you build credit.