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What is credit? -

Credit is a contract agreement in which a borrower receives a sum of money or something of value and repays the lender at a later date, generally with interest.

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The power of credit -

Credit is part of your financial power. It helps you get the things you need now, like a loan for a car, based on your promise to pay later.

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What is a credit card? -

When you think of credit, you might first think of credit cards. A credit card is a payment card that you can use to buy items, but you won't need to pay for them right away.

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Using a credit card -

Depending on your credit provider, you need to pay back the amount later. This will undoubtedly incur a fee, a small percentage put on the original price to pay to the lender.

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Credit worthiness -

Credit can also refer to the creditworthiness or credit history of an individual or a company.

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Credit history -

Your credit history is a record of your borrowing and responsible repayment of debts. It also describes how you use money.

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Payment history -

Payment history is the most important factor making up your credit score.

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Credit score -

A credit score or rating is an indicator of a person's creditworthiness, or their ability to repay debt.

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High credit score -

How well you manage something like a credit card will affect your credit rating. This is decided by a credit score, a number from 300 to 850 that rates a consumer's creditworthiness. The higher the score, the better a borrower appears to potential lenders.

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How to achieve a good credit rating -

Establishing good credit habits is essential in order to build and improve your credit history and credit score. How is this achieved?

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Practice fiscal management -

Paying bills on time and managing your debt-to-income ratio helps establish good credit habits. So too does avoiding maxing out credit accounts, and making payments before taking on new debt.

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Maintaining a credit line -

Practicing sound fiscal management will pay off if you need to apply for another credit card, or for additional credit such as payments on a vehicle or a mortgage.

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Low credit score -

A low credit score can make it harder to borrow, whether for a mortgage, home improvements, or credit card application.

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Expect higher interest rates -

Even if you do manage to qualify for credit, you'll likely have to pay higher interest rates to make up for the increased level of default risk.

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Make sure your address is up to date -

Easily overlooked, but having your current address on your credit report is very important. If you move homes, register your new details with the local authorities as soon as possible.

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Impact on career opportunities -

Having a poor credit rating may impact your job prospects. Good credit habits set you up for better career opportunities. For example, in most states in America, employers are allowed to pull consumer credit reports to assist in their hiring decisions.

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Long-term financial implications -

Maintaining bad credit can have worrying long-term effects on your financial life. If you have high-interest credit card debt, you're not able to put any money away for the future. Debt has no return on investment!

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How to improve your credit card rating -

There are several ways to improve your credit rating. First you need to improve your credit history. This is achieved in the first instance by settling your accounts on time and in full each month.

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Keeping credit utilization low -

Ease up on the plastic. Do so by keeping credit utilization low. Your credit utilization is the percentage you use of your credit limit. So for example, if you have a limit of US$1,000 and you've used US$500 of that, your credit utilization is 50%. Ideally, aim to use around 30% of your credit ceiling monthly.

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Check your credit report - Read and disseminate your credit report carefully. Even the most innocuous of errors, such as a mistyped address, can affect your score and could be enough for a lender to refuse you credit.

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Beware of double trouble -

Beware maintaining a financial association with others. If you have a joint bank account, or other joint borrowing, the other person's credit rating can affect your own.

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Avoid multiple applications -

If you've been turned down for credit, resist the temptation of applying for further credit or trying to borrow from elsewhere. Multiple applications over the short term can have a negative affect on your credit score.

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Managing credit -

Keep track of your finances. Every month, sit down and make a note of all your incomings and outgoings, things like rent or mortgage repayments, and shopping costs.

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Start saving -

Whenever possible, put aside money at each paycheck and use it to pay off your cards. This will improve your credit rating.

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Is closing a credit card a good idea? -

Contrary to popular belief, closing a credit card could lower the amount of overall credit you have versus the amount of credit you're using (your debt to credit utilization ratio). This could impact your credit scores.

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Keep it open -

Understand that if you don't use a particular credit card, you won't see an impact on your credit score as long as the card stays open.

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Inactive cards -

Be aware, however, that the consequences to inactive credit card accounts could have an unwanted effect if the bank decides to close your card.

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Cashing in on rewards -

Staying in credit and achieving a high credit score has its advantages. When your rating is good or excellent, you can very often access the best introductory offers and cash-back incentives available among a host of credit products.

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Credit incentives -

And some top-tier credit cards also give away special invitations to exclusive concert and event presales, or reward you with cash back on streaming services and more.

Sources: (MoneyHelper) (USA.gov)

See also: How to save money like our grandparents

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