What’s on your agenda for 2025? If taking control of your financial health sounds right, then stick around. We have plenty of great resources, including this article that provides tips for moving forward with confidence. The start of a new year is prime time to set goals, whether you’re a credit newbie or you’re looking to improve on what you already have. With a solid understanding of credit and a plan in place, you can establish a financial foundation that will serve you for years to come.
Why Credit Matters
Credit is more than just a number. It’s your financial reputation that is critical for lenders, landlords, and sometimes even employers to gauge your financial reliability. A strong credit history is fundamental in your financial journey, helping you reach milestones and goals:
- Qualify for loans, including mortgages, often with better loan rates.
- Rent an apartment.
- Get lower insurance premiums.
- Potentially secure better job opportunities.
Get Your First Credit Product
Building credit from scratch might seem intimidating, but it’s part of the path. Everyone with credit has to start from zero. There are various ways to establish credit, some ways more practical and low risk than others. Here are the top two options we recommend:
- Get a Secured Credit Card
For credit newbies, secured credit cards are often the best starting point. These cards require a cash deposit that becomes your credit limit. It’s like training wheels for credit — low risk for the bank, and a great way for you to build credit responsibly.
Tips for choosing a secured credit card:
- Look for a card with low annual fees.
- Check if the card reports to all three major credit bureaus.
- Aim for a card that allows you to graduate to an unsecured card after consistent payments.
- Become an Authorized User
Ask a trusted family member or partner with good credit to add you as an authorized user on their credit card. Their positive credit history can help boost your credit score.
Good Credit Best Practices
Pay on Time
Building credit starts with getting a card, but it progresses with using it wisely. Remember: Payment history accounts for 35% of your credit score. Make it a priority to pay on time, every time. Set up automatic payments or calendar reminders to ensure you never miss a due date. Even one late payment can significantly impact your score.
Keep Credit Utilization Low
Credit utilization – the amount of credit you’re using compared to your available credit. Since it accounts for 30% of your score, you should keep tabs on how much you’re using. Aim to keep your utilization below 30% across all cards. Create a specific plan to pay down existing balances, perhaps by targeting the highest-interest cards first or using the snowball method (paying off your cards with smaller balances first).
Monitor Your Credit
Start by obtaining your current credit reports from all three major bureaus: Experian, TransUnion, and Equifax. Review them carefully for errors and dispute any inaccuracies you find. Knowing the state of your credit is crucial for maintaining or improving your score.
While building your credit, be strategic about new credit applications. Why does this matter? Each hard inquiry can temporarily lower your score! So only apply for new credit when necessary. Consider requesting credit limit increases on current cards if you’ve demonstrated responsible usage (first ensuring these won’t trigger hard inquiries); this can help improve your utilization ratio without opening new accounts.
Words of Wisdom
So far we’ve covered the To Do List of building or maintaining good credit. We’d be remiss if we didn’t let you in a few no-no’s as well. Keep these tips top of mind throughout your credit journey:
4 things that will hurt your credit
- Apply for multiple credit cards at once. Each application requires a hard inquiry, which means your credit score can take quite a hit when you do more than one at a time.
- Max out your credit limits. You can get hit with higher minimum payments and higher interest rates.
- Close old credit accounts. This can decrease your available credit, increase your credit utilization ratio, and lower the average age of your credit accounts
- Ignore your credit report. This one might sound obvious, but many people don’t check their credit report on a regular basis, leaving them in the dark regarding potential errors or identity theft.
New Year, New Credit Strategy
As you enter 2025, make a point to take good care of your credit. Whether you’re starting from scratch or taking steps to improve your existing credit score, know that it takes time to achieve your goal. Don’t get discouraged if the pace is slow, because the end game is what matters most, affording you better financial opportunities and savings. Here’s to taking control of your finances in 2025!
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