Building, maintaining, and improving both your personal credit score and a small business credit score is incredibly important when it comes to controlling your financial success. If you ever want to apply for a loan for a house, car, small business, or a credit card, your credit score will impact whether your application will be accepted and determine your interest rate. (Spoiler alert: the better your credit score, the higher your chances and lower your interest rate.)
But the world of credit scores and credit reports can be confusing, so we want to lay out the top tips for building a strong credit score and what steps you should take to keep it that way.
The Importance of Understanding Your Credit Score
Whether your credit score is strong or not, it’s good to know where you stand in the eyes of financial institutions if you ever want a future loan. If your score is less than ideal, you can take steps to improve it. If it is already strong, you can take steps to maintain it.
Understanding your credit score also keeps you from coming across surprises when you submit financial applications. If you know your credit score (and monitor it on a regular basis), you’re less likely to be surprised about the outcome of an application, whether you’re approved or denied.
You’ll also be able to quickly spot potential errors on your credit report. Your credit score is a direct reflection of your credit report, meaning that if you see an unexpected drop in your credit score, it could be an indication that there’s a disputable mistake in your credit report.
When you understand your credit score and pay attention to it regularly, it’s much easier to make the connection between your everyday financial decisions and how they impact your score.
5 Tips for Building a Strong Credit Score
There is no “perfect” way to build your credit score, but there are several best practices to follow to build the best score you can.
- Pay your loans on time — It can be surprisingly easy to either miss payments by accident or find yourself unable to make payments entirely. A reliable way to avoid this is to set up automatic payments that can be withdrawn from your account on the same day each month. That way, you’re not blindsided by when a payment is coming out, and you also won’t accidentally miss a payment.
- Know your credit utilization rate — Loans and credit cards almost always have a credit limit. Your credit utilization rate is the amount of credit you have available to you in comparison to how much you’ve used (or what you owe). A high credit utilization rate can negatively impact your credit score, so a good rule of thumb is to use 30% or less of your available credit limit.
- Understand “good” debt vs. “bad” debt — Debt can be an intimidating thing, but not all debt is considered “bad”. Good debt can be anything that could improve your financial health, whether that is in the form of generating additional income or significantly improving your life in other ways (e.g., purchasing real estate, investing in education, or starting a business). It’s important to manage your debt wisely and avoid overspending, but gaining some debt over time with the ability to pay it back properly can help your credit score improve.
- Keep up with your credit reports — You are entitled to one free credit report check every year across three major credit card bureaus, including Experian, Equifax, and TransUnion (meaning three free checks each year). To debunk a common myth, checking your credit score each year is considered a “soft inquiry” which means it does not negatively impact your credit score. And if you keep up with monitoring your reports, you can avoid any potential errors, inaccuracies, or suspicious behavior.
- Utilize tools like Credit Insights — Republic Bank’s mobile banking app includes a feature called Credit Insights that provides free, ongoing access to your credit score and report. It monitors for key changes, finds savings opportunities on existing or new loans, and allows you to check your full score, report, and factors that influence them. It also sends notifications to any major changes detected to help monitor for suspicious activity. Checking your file through Credit Insights has no impact on your credit score.
At the end of the day, it’s important to understand what hurts your credit score and what helps it. At Republic Bank, we have experts on staff ready to advise you in the right direction, whether that’s building a credit score, improving it, or simply maintaining it. Please feel free to reach out to us by calling 800-526-9127 and explore other financial tips here.
