How To Build and Responsibly Use Credit
educating-myself | Read Time: 3 minutes
By Bob Juliano | Published: March 2022
March is National Credit Education Month, which serves as a good reminder of the importance of responsibly using credit during your financial journey.
It is important, however, to remember that building your credit and living within your means should remain in focus throughout the year and not just the month of March.
Whether you’re just getting started with borrowing or need a refresher on the basics, here are a few tips to help build and responsibly manage credit for your needs.
Understand the Basics
Before borrowing – whether it be a personal loan, credit card or other line of credit – it is important to brush up on the basics.
Ensure you have a solid understanding of your credit score and what impacts it, such as payment history, credit utilization and mix, as well as how your score can impact your financial goals when it comes to borrowing and the rates you may be offered.
A good credit score is generally above 700, so if you find yourself below that threshold, take steps to improve your score such as paying down high interest loans and working on your debt to credit ratio to help position yourself for a better rate.
Even if your credit score is in good shape, consider asking yourself questions about the four “Cs” of credit: Capacity to borrow and pay back on time; Capital, such as money saved or investments to use for repayment; Character of the credit or loans you have or previously used (also known as credit history); and Collateral, which acts as security for the lender if the loan is beyond your ability to repay.
Fraudulent schemes continue to hit consumers’ wallets at a rapidly increasing pace and falling victim to scammers can have an impact on your credit score, and in turn, your future borrowing options.
While checking your credit score in many mobile banking apps is a good way to get a high-level view of where you stand, you should also check your credit report from the major credit bureaus. You’re entitled to one free credit report from Equifax, Experian and TransUnion each year, and it’s a good idea to take advantage of this to ensure there are no inaccuracies or fraudulent activity.
If you do spot an inaccuracy or fraud on your credit report, place an alert on your report by contacting the credit bureaus directly to dispute the inaccuracies. Adverse items can remain on your report for years, so it is vital to correct them as quickly as possible, especially if you’re looking to borrow in the near future.
Live Within Your Means
The golden rule when it come to your finances: live within your means. This is easier said than done in some instances, but it is important to know the true cost of what you’re borrowing for so you don’t overextend yourself when it comes time to pay back the loan and any interest accrued.
Once you’re ready to take out a loan or line of credit, consider making an appointment with your banker to help walk you through your options. They will be able to help you review your current financial situation, what product might best fit your needs and put a plan in place to help you reach your goals.
Whether you’re just getting started on your financial journey or already have an established plan in place, building and responsibly using credit is vital. By remaining mindful of your spending and borrowing throughout the year, you can help set yourself up for success and be on your way toward achieving your financial goals without overextending yourself.
About the Author – Robert Juliano
Bob Juliano is Vice President, Director of Corporate Giving & Financial Literacy at WSFS Bank. He is a financial education expert for the Bank and has taught K-12 financial literacy to thousands of children.
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