Regardless of where you come from or what your goals are in life, you are going to need financial tools on your side in order to realize your dreams. A high credit score is among the most important financial tools ever devised. If carefully cultivated and used properly, it can help you achieve your goals and elevate your quality of life and that of your entire family. Below, we are going to take a close look at why a high credit score is so important and provide some suggestions about how to build a credit history that will effectively serve your needs.
Why High Credit Score is So Important
You have to spend money to make money. But there are also times you need to borrow money to realize your dreams. Here are just some of the ways high credit score can help you in your everyday life:
- A high credit score can make it possible to secure a mortgage – Few people can sit down with the realtor and write a personal check for the entire amount of a home. They need a mortgage. Building a high credit score will enable you to secure a mortgage from a lender at the best possible rate. That way you can minimize your monthly payments and have more money available for other things.
- A high credit score will make traveling easy – Traveling to your dream destination costs money. But you can’t risk carrying thousands of dollars in cash around with you when you’re traveling. High credit score enables you to have credit cards at the ready to cover costs incurred while traveling. And the better your credit rating the lower the interest rate on your card or cards.
- Credit can make it easier to obtain a smartphone – Even if you intend to pay for your phone with cash you will likely be subject to a credit check before you can obtain a calling plan. Cell plan providers want to be certain an individual will pay their monthly bill in a timely fashion and that they will also pay any additional charges they incur while using their phone.
- Credit will enable you to rent a car – Being able to rent a car at the airport can make all the difference when it comes to enjoying yourself when you travel. There may also come a time when your own car is incapacitated for some reason and you need to rent a car to cover you while it is in the shop. A high credit score will enable you to do that.
- A high credit score can enable you to rent the apartment you want – In tight housing markets, it’s not unusual for landlords to consider a person’s credit score before deciding to rent them an apartment. Maintaining a high credit score can enable you to get the apartment you want with minimal fuss by reassuring landlords that you will pay your rent on time.
- Having credit provides you with options – ‘Choice’ is one of the buzzwords of our time. The more options you have at your disposal, the richer and more rewarding your life will be. As we have already seen, few things provide as many options or enable as many choices as a high credit score. It doesn’t take much to construct a solid credit history. And the potential benefits will reverberate throughout your life in many ways.
Now that we have some idea of the many ways credit can enable a more rewarding life, let’s look at a few ways a person can build that all-important high credit score history.
Tips on Building a High Credit Score
Here are some useful tips on how to build a high credit score with minimal effort.
- Pay your bills in full and on time – Pay all your monthly bills, including your phone, electricity and credit cards on time every month. Some credit rating agencies take utility payments into consideration when formulating your credit score. And certainly, making late credit card payments – or only paying the monthly minimum for months at a time – will also have a negative effect on your credit rating.
- Keep tabs on your credit report – Keeping tabs on your credit report is easier than you think and can pay enormous dividends in the long run. Most people would be surprised at how often erroneous information appears on a credit report. So it’s vital that you keep tabs on what the major credit rating agencies are saying about you and dispute any incorrect information. You are allowed one free copy of your credit report every year from each of the major credit rating agencies. So take advantage of this and make sure everything is ship-shape going forward.
- Get and use a major credit card – Credit cards are a great thing to have in your wallet as long as you are able to use them wisely and exercise restraint. They are also one of the foundational pieces when it comes to constructing a high credit score history. To apply for major credit, keep it with you and use it responsibly. Credit rating agencies also look at how much of your available credit you use. It’s called the ‘utilization rate’. So try not to carry a balance that’s more than 30% of the credit limit on the card.
- Have only a couple of cards and keep them – Credit rating agencies also look at how many different credit accounts you have when deciding if you are a good or bad credit risk. So don’t go applying for a dozen credit cards thinking that will help your credit score. It will likely hurt it. Keep a couple of cards, use them judiciously and hold onto them as long as they don't charge any outrageous fees. This way you demonstrate wisdom, restraint, and consistency.
- Obtain a credit builder loan – Credit builder loans are loans primarily designed to showcase your ability to make monthly payments in a timely fashion so that you can bolster your credit history. You borrow a set amount from a lender and then repay them in a series of fixed monthly payments. Once the loan has been repaid according to the terms, you can use this loan as a reference when applying for other credit products in the future.
The Bottom Line
A high credit score is one of the most valuable things to have in your financial arsenal. Building a high credit score requires patience, restraint and the ability to make good choices. Use the above tips as a guide to building a high credit score and you will reap the benefits throughout your life.
Brian is a dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013 who, with his family, has successfully paid off over $100K worth of consumer debt. I want my three children to handle money better than I ever did at a young age. I have been teaching them as much as I can for the last 10 years. My goal is to continue to champion the financial literacy message and then why I created the “How To Rock Your Money” book. To help teenagers navigate their financial futures. I hope my family’s story of paying off over $100,000 worth of debt will inspire and motivate you to take control of your money. He blogs at BrianBrandow.com