One of the most important things you can do for your finances is to be smart about the way you manage your credit. Good credit can save you money in the long run, and provide you with opportunities to maximize your financial situation.
If you want to build and maintain good credit as part of your frugal lifestyle, here are some tips you can follow:
1. Make All Your Payments on Time
The best thing you can do is make all of your payments on time. Your payment history is the most important aspect of your credit score, and it’s something that can make or break you.
It’s not just loan payments you need to make on time if you want good credit. You also need to make other payments. While some payments, like your insurance premium and utilities, might not register on the positive side of a traditional credit score, they will start to impact you if you miss payments. Your missed payments can be reported or sent to collections, and then they will drag down your credit score.
2. Use Credit Sparingly and as Part of a Plan
In order to build a credit history, you need to use credit. However, you don’t want to end up in debt as a result of your credit use. This means you need to use credit sparingly and as part of a plan. If you don’t trust yourself with credit, you can improve your situation by simply using your credit card once or twice a month on small purchases and then paying it off.
I like to use my credit cards more often. They are part of my spending plan, and I use them for most regular purchases. I do pay off the purchases each month, so that helps keep me from seeing big interest charges, and it helps me build my credit history.
3. Don’t Borrow Too Much
Creating a solid credit history is a matter of balance. Yes, you need to use credit to get a credit score. Sometimes it makes sense to get a small loan, as for a car or a personal loan, in order to diversify your credit profile. However, you want to balance that out. If you have too much debt, it can backfire on you. Too much debt drags down your credit score, you need to make sure you pay it off as quickly as possible, and borrow as little as possible.
4. Keep Your History
It can be tempting to cut up your credit card, especially if you have had trouble in the past. If you cut up your card or put it on ice, you don’t have to cancel the account. Canceling the account can shorten your credit history and ding your score. Keep your history intact when possible, and avoid applying for a lot of new credit at once, since those inquiries can bring down your score and reduce the average age of your accounts.
5. Follow a Financial Plan
The key is to follow a financial plan. Creating a plan for your money can help you rein in your spending and prepare for the future. Build an emergency fund so you don’t have to use debt to get you out of a pinch. Plan ahead so you have the resources you need and make a plan for spending your money wisely. You’ll maintain good credit, and a better financial situation.