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Are big purchases on the horizon for you? Before you go hunting for the best possible rates on an auto loan or mortgage, give yourself a quick credit checkup.

Creditworthiness, or the ability to manage and repay debt, is a factor that financial institutions consider before approving applicants for credit cards or loans. They gauge this ability through a credit score, a number calculated from credit reports that indicates a person’s likelihood of repaying borrowed money.

Having a high credit score has many advantages. It allows you to apply for loans with favorable terms, such as a lower interest rate. Conversely, a lower credit score may limit your financing options.

Are you looking for ways to stay informed about your creditworthiness, or are you looking for ways to improve it? You’ve come to the right place. Let’s discuss the things you can do now that can impact your score productively.

Make Your Payments on Time Every Month

One of the most impactful ways to build your credit is to make your payments every month. The leading credit reporting bureaus put a heavy weight on payment history.

Lenders want to work with people who can meet their financial obligations on time. Always pay your bills before their due dates, whether they're utility bills or credit card balances.

Set up automatic payments or reminders to ensure you never miss a due date. If you manage more than one account, it may help to set up a “finances day” where you sit down and pay all your balances at the same time every month. Mark these days on your planner, calendar, or phone and set up recurring reminders.

If you’re starting with your first credit card, establishing this one habit can build a solid foundation for your financial journey. Consistency matters, and adopting this practice now sets the pace for continued success.

Manage Your Credit Utilization Ratio

A credit utilization ratio is the amount of available credit that a borrower is using at any moment. The leading credit bureaus recommend that your utilization ratio should not exceed 30% at any one time.

For example, if your credit limit on one card is $5,000, the balance on that card should never exceed $1,500.

A credit utilization ratio is an indicator of a borrower’s financial health. If the ratio is too high, it could signal an overdependence on credit or other financial strain.

There are several ways to keep your utilization ratio at manageable levels. Some popular strategies include:

• Paying down balances regularly.
• Spreading your purchases across several credit cards.
• Requesting a credit limit increase from your card issuer.
  

Depending on your situation, you can use one or more of the above suggestions. First-time cardholders may find it easier to keep their credit utilization ratio in check by paying down balances weekly or biweekly. Cardholders with rewards programs might find it more worthwhile to increase the limit on their favorite card so they can continue using it to earn points.

If you do opt for a credit limit increase, remember to manage your spending accordingly. The goal of a limit increase is to ensure you have enough room to maintain a reasonable credit utilization ratio.

All in all, the strategy you choose will depend on your needs and what is most comfortable to you.

Get an Occasional Credit Check

A credit report is a statement that has information about your credit activity and current credit situation. It includes items such as a loan payment history and an individual’s current credit limit.

Contrary to popular belief, requesting a credit report does not negatively impact your score. Consumers are entitled to free credit reports from the three major reporting bureaus:

• Equifax
• Experian
• TransUnion
  

As of this writing, you may request a report from these three agencies once a week.

Visit AnnualCreditReport.com to get started. AnnualCreditReport.com is the only authorized online source under federal law that provides free credit reports.

A credit report provides a wealth of information that gives you a big picture view of your history. Review this report carefully to ensure that it is accurate.

Be on the lookout for things like accounts you don’t recognize or late payments that you paid on time. You can dispute these items to the bureau that provided the report, which may improve your credit score.

Another advantage of getting regular credit checks is that it can help you spot potentially fraudulent activity. Credit reports also keep track of accounts that have been opened in your name. If you suspect you’ve been a victim of identity theft, contact the reporting bureaus and let them know. You can also visit IdentityTheft.gov, which is a resource from the Federal Trade Commission that assists fraud victims.

While maintaining a healthy credit score can be daunting, diligently managing it can help finance the big moments in your life. Remember that consistency is key, and maintaining good habits can empower you to achieve a favorable outcome.

First Florida is your partner in helping you reach your goals. Visit our Featured Articles section to discover more financial tips that you can use in your daily life.