Why Building Credit Matters

Good credit is key to unlocking opportunities and achieving financial freedom. It can open doors to better job opportunities, the ability to purchase a home, and access to more competitive loan rates. By building strong credit now, you can enjoy the long-term financial benefits that come with it. Read on to learn what credit is, why it's important, how to build it, common mistakes to avoid, and some of the long-term benefits that come with building robust credit.

What is Credit and Why Does it Matter?

Credit measures our financial trustworthiness and serves as an indication of our ability to borrow money and pay it back in a timely manner. Essentially, credit is an evaluation of our past financial behavior, and it helps lenders determine the risk involved in lending us money. But why does it matter?

Credit matters because of the considerable impact it can have on several aspects of our financial lives. It can determine whether we qualify for loans, credit cards, or mortgages. It affects the interest rates we are offered when we borrow, which, over time, can save or cost us thousands of dollars. Credit can affect our job opportunities as some employers may check our credit history as part of the hiring process, especially for positions involving financial responsibility. Additionally, landlords often review credit scores when considering potential tenants. Building good credit is important as it impacts many facets of our lives.

How to Build Credit - Tips and Tricks

Building credit can seem like a daunting task, but with the right tips and tricks, it can become a manageable and even enjoyable process. Here are some strategies to help you build credit effectively:

1. Start with a secured credit card: If you have no credit history or poor credit score, a secured credit card can be a great way to get started. With a secured card, you'll need to provide a cash deposit that acts as collateral. Use the card responsibly, make timely payments, and you'll start building credit in no time.

2. Make payments on time: Payment history is a significant factor in determining credit score. Always make your payments on time, whether it's for credit cards, loans, or other bills. Set reminders or automate payments to avoid late payments.

3. Keep utilization low: Credit utilization refers to the amount of credit you're using compared to your total credit limit. Aim to keep your utilization below 30% to show lenders that you can manage credit responsibly.

4. Diversify your credit: Having different types of credit, such as credit cards, student loans, or a car loan, can show lenders that you can handle numerous financial responsibilities. Just be sure to manage them responsibly and never take on more debt than you can handle.

5. Monitor your credit report: Regularly check your credit report for errors or inaccuracies. Make sure to dispute any incorrect information and work towards resolving any outstanding debts or issues. When disputing credit, make sure to go through the proper channels like the Federal Trade Commission or reporting agencies such as Equifax, TransUnion, and Experian that offer credit reports for free.  Keep in mind that both the credit bureau and the business that supplied the information to a credit bureau must correct the information that’s wrong or incomplete in your report.

Common Mistakes to Avoid When Building Credit

Building credit can be an exciting challenge, however, there are some common mistakes that many people make which can hinder your progress. One common mistake is maxing out credit cards or carrying high balances. This can negatively impact your credit utilization ratio which is a percentage that represents the amount of credit you are currently using compared to the total credit available to you. Credit utilization is a key factor in determining your credit score. Also, making late payments or missing payments altogether can significantly damage your credit history and make it harder to build credit in the future. Opening too many new credit accounts at once can also be detrimental to your credit. Each time you apply for new credit, it results in a hard inquiry which occurs when a financial institution or lender checks your credit report as part of their evaluation process for extending credit to you. Hard Inquiries can temporarily lower your score. Keep in mind, neglecting to monitor your credit report for errors or fraudulent activity can be costly. It's important to regularly review your credit report and address any issues promptly.

Long-Term Benefits of Good Credit - Financial Freedom

Now that you have a better understanding of what credit is, why it matters, how to build it, and common mistakes to avoid when building, let’s get to the substantial benefits that successfully building good credit offers.

Good credit provides you with access to better loan rates, which means you'll save money on sizeable purchases over time. Lower interest rates on mortgages, car loans, and credit cards can save you thousands of dollars in the long run. Good credit also opens opportunities for helping to achieve major financial goals, such as buying a home or a vehicle. Lenders are more likely to approve your mortgage application if you have a strong credit history. This means you are more likely to secure your dream home and can build equity in the home over time.

Furthermore, good credit can improve your job prospects. As mentioned previously, some employers may check your credit history as part of the hiring process. By demonstrating financial responsibility through a good credit score, you can increase your chances of landing a job or advancing in your career.

The Key to Unlocking Opportunities and Securing a Strong Financial Future

Building credit takes time, patience, and research, but with these tips and tricks, you'll be on your way to establishing a strong credit history and help achieve financial freedom. Remember to stay disciplined, be responsible with your credit, and make wise financial decisions along the way. You’ll start building toward your financial goals in no time!

At F&M Bank, we understand the power of good credit and what it can mean for you and your family. Want a safe, flexible credit card from a reliable Bank that has your financial future in mind? Check out our Personal Credit Cards and see which one is best for you!