How to Establish Healthy Credit Habits in the New Year

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The new year is well and truly upon us, and whether you’re the type who loves making new year’s goals (*raises hand) or you think they’re a waste of time, I think we can all agree that establishing healthy credit habits should be high on the list of priorities.

One of my long-term goals has been to increase my credit score and reach an exceptional credit standing across all credit reporting agencies.  A couple of weeks ago, I was chatting online with two of my best friends and simultaneously checking my credit. When I logged in to check my credit score, I discovered that I’d finally reached my goal – a credit score of 800. I was elated and excitedly shared the news with my friends. I felt great about achieving this status.  

In the same way that my healthy credit score helped raise my self-esteem, a bad score can have negative implications on your self-worth which is one of the reasons why it’s so important to take control of your credit.

Not only does a healthy credit score improve your chances of getting approved for things like a mortgage, personal loan or car financing, it can also help to remove anxiety and stress surrounding your credit and help you feel more in control of your finances and your life in general.

One of the first things I recommend doing is requesting your Annual Credit Report, which provides one free credit report from each of the three credit reporting agencies each year.  While your Annual Credit Report won’t report your credit score, it will provide you with important information on things that can impact your credit score, including missed payments and bad debt.

I’ve spoken before about how I managed to build my credit rating from scratch. I used a variety of strategies, but personally, the strategy that provided the biggest impact was creating a plan for better credit (I’m a planner, in case you hadn’t noticed!)

Create a Plan for Better Credit

  • Pay your bills on time

One of the best ways to build a positive credit history is to always pay your bills on time. I get it, nobody likes paying bills, myself included. But sticking your head in the sand and ignoring that pile of bills sitting on the counter isn’t going to make them go away. Instead, you’ll likely incur late fees and your credit will take a hit.

If you have trouble remembering to pay your bills, check to see if you can set up an autopay on your accounts.

  • Maintain a low credit utilization

Avoid maxing out your credit cards each month and try to keep your credit utilization low. A good percentage, that many industry experts state to shoot for, is 30 percent or less than your available credit. For example, if you have a $10,000 limit on your credit cards, try to keep your balance at less than $3,000.

This is something that I’ve always done and my credit score reflects this.

  • Evaluate credit card types

While I’m hesitant to recommend credit cards, responsible use of a credit card can be a good way to increase your credit score.

There are various perks associated with many credit cards, including things like cashback bonuses, travel rewards, etc., so if you’re in the market for a credit card, check if the company offers those sorts of perks. Additionally, make sure you check the annual fees and interest rate before you sign on the dotted line.

I did a lot of research when I was trying to decide which company to open a credit card through. I ended up choosing a provider that offered zero fees and great cashback rewards that change throughout the year.

TransUnion Featured Credit Card Offers is a great tool that allows you to filter through a range of credit cards to find the one that best fits your needs. The tool allows you to sort by credit score and card type, including things like cashback rewards, travel rewards, student, etc.

  • Pick the best card for your needs

If you currently have more than a couple of credit cards, I recommend figuring out the one to two cards you use the most and sticking with them. When deciding which credit cards to use, you might want to consider looking at things like who offers the lowest interest rate and the best rewards.

Once you’ve decided which credit cards you’re going to use, don’t close the other accounts. If you’re trying to build your credit, this is not usually the best strategy, as closing older accounts can negate the work you’ve done to establish a long history of positive behaviors and on-time payments, which may bring down your score.

Create a Budget

When you’re trying to improve your credit, it’s important to live within your means. This means not spending more money that what you’re earning – i.e. not racking up mountains of credit card debt, and maintaining that low credit utilization I mentioned above.

If you’re not used to living within your means, one of the best things you can do to get started is to create a budget.

Budgeting might sound boring and restrictive, but I’ve found that the opposite is true. If you’re intentional with your money and avoid spending more than you make, then you’ll freeing yourself of the anxiety that comes along with seeing that credit card bill in the mailbox (and knowing that you don’t have the money to pay it.)

Be Vigilant About Credit Monitoring and Protection

I’m sure this doesn’t come as a surprise, but not everyone is as honest as you and me. There are fraudsters out there who try to steal people’s identity and use it to take out loans, open credit cards, rent apartments and apply for jobs in your name.

When these fraudsters fail to make repayments, this appears as a delinquency on your credit report. Needless to say, this isn’t good news.

Being vigilant about checking your credit report is one way to catch fraudsters, as your report will provide important clues that may point towards your personal information being compromised and negatively affecting your credit score.

Fortunately, there are various ways you can monitor and protect your credit, including:

  • Securing your personal information

Make sure you use strong, unique passwords online (for example, don’t use your name, date of birth or a string of consecutive numbers like 12345) and change your passwords regularly.

Additionally, be very careful about sharing your account numbers or any login information over the phone or online.

You might also want to check out Dashlane, a secure, online password manager that provides secure VPNs and Dark Web Monitoring to help you manage and protect sensitive information on the web.

  • Using credit protection tools

For further peace of mind, you can lock or freeze your credit, if you’re suspicious of fraud.

Credit monitoring tools like TrueIdentity, a free identity protection service that includes a one-touch credit lock, instant alerts, and TransUnion credit report refreshes, are easy and accessible way to keep your information, and credit, safe.

However, even when accounts are locked, it’s important to always keep up with credit report changes, as these reports can provide important clues that may point towards your personal information being compromised which may be negatively affecting your credit score.

If you’re unsure on whether a credit lock or credit freeze is best for you, TransUnion has a helpful guide to help you understand the difference and when each protection should be used.

In Summary

Having a healthy credit score has many benefits, not only financially but also personally. This year, I encourage you to take the steps required to establish healthy credit. And if you want to read up on credit scores, make sure to check out TransUnion Credit Score Overview for more information on credit scores and why they’re so important.

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Hi I'm Ashli. I'm work-at-home mom of one who loves being outdoors, reading, running, exploring Japan (where I currently live) and teaching other moms how to make money online.

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