Credit plays a vital role in helping people achieve their personal and financial goals. A good credit score can help people qualify for favorable home loan terms, paving the way for them to move into their dream home. A strong credit history can also help consumers earn benefits, and young people who learn how to use credit wisely can avoid potentially costly interest charges that tend to hamper the financial freedom of many young adults.
Many consumers struggle with managing their credit. According to FICO®, a data analytics company that developed the FICO score that many lenders use to determine consumer credit risk, more than 10% of consumers in the United States have credit scores below 550. Any score below 550 is considered very poor.
No two consumers are the same, but many who struggle to establish a good credit history may engage in certain behaviors that can hurt their credit scores.
• Taking too many lines of credit: Consumers with little experience managing their finances, such as students and young adults, often find it difficult to resist offers of credit. Retailers can offer deep cash discounts to shoppers who want to sign up for store credit cards. Inexperienced consumers may not recognize that these cards often feature inflated interest rates, especially when compared to friendlier cards. Avoid opening too many credit accounts, as this can hurt your credit score and make it easy for you to lose track of your spending.
• Let interest charges pile up: Paying interest on consumer debt like credit cards won’t help consumers improve their credit scores, so pay off balances immediately. This is easier to do if you only have one or two lines of credit that you monitor regularly.
• Use credit for everyday purchases: credit is not cash in your pocket and it is not money withdrawn directly from a checking or savings account, which it is. when using a debit card. It is therefore easy for consumers to lose sight of their daily expenses if they spend these expenses with a credit card. Balances can add up quickly, and if they can’t be paid off in full when the bill is due, interest charges will begin to accrue. This pitfall can be avoided if consumers commit to using credit only for emergencies or when buying expensive items that they know they will be able to pay when the card bill is due. credit.
• Not monitoring credit score: It’s now easier than ever for consumers to track their credit score. In fact, many credit card companies provide free monthly updates to cardholders, who won’t have to lift a finger to see if their scores have improved or deteriorated over the past 30 days. Consumers should take advantage of this relatively new benefit so they can see how their credit usage affects their overall scores. They can then use this knowledge to improve their scores in the future.
Certain behaviors can negatively affect consumer credit scores. By educating themselves about these behaviors and taking steps to avoid them, consumers can go a long way toward achieving their short- and long-term financial goals.