Simple steps help build a healthy credit rating

Published: Apr. 21, 2015 at 2:47 PM CDT|Updated: Apr. 29, 2015 at 3:23 PM CDT
Email This Link
Share on Pinterest
Share on LinkedIn

MONTGOMERY, AL (WSFA) - It's a score that will determine what you can buy and how much you have to pay for it. If you've ever purchased a home, car, or applied for a credit card, your credit score is very important.

April is Financial Literacy Month and this week we're looking at how to get healthy credit. So what exactly is healthy credit?

"Healthy credit is having bills that you pay on time," explains Wendy Anderson with Max Credit Union. "It's also having a good mix of credit. Your scores can range anywhere from 300-850. The higher the score the better."

When your credit is healthy, you'll have a much easier time not only getting a credit card or loan, but also getting it at a better rate. This can save you thousands of dollars in the long run.

So how do credit agencies come up with your score? They consider things like payment history. Are your payments made on time consistently? They also look at your credit capacity. This is your credit limit compared to how much you actually have on a card.

Credit agencies also want to see how long you've had credit, the longer the better if you pay on time. They also want to see how fast you accumulate credit. If you're maxing out a card every six months you may appear to be a higher risk. But that doesn't mean to avoid credit cards altogether. In fact, you need to use credit cards to have a good score.

"You want to use them from time to time because your credit report is just that. Some people say they don't want to rack up credit card debt, so they don't use them at all. But then when someone tries to check your credit history down the road there's nothing there," Anderson says.

So use your card, just make sure to use it responsibly. If you can pay off the balance each month, do so. But if you get into financial trouble the rules change a little.

First off, don't apply for more credit cards. Try to pay off the ones you have. Secondly, don't try to pay off too much at once and leave yourself with not enough money for your other bills. And when you don't know where to turn, find a credit counselor who will help you develop a plan.

Now, you can actually check your credit report each year for free. You are entitled to one free credit report from each of the three rating agencies each year. Those companies are Experian, EquiFax and TransUnion. Financial experts recommend you get them 3 or 4 months apart from the different agencies, not all at once. That way you can keep a good eye on your credit history for most of the year. 

Here is a link with information about all 3 credit reporting agencies:

Copyright 2015 WSFA 12 News. All rights reserved.