The right credit score can make a big difference to your financial opportunities. In general, a higher credit score gives you the option to access more attractive financing terms. Better terms and lower interest rates can come in handy for purchases of all sizes.
If you want to build a better credit score, it’s absolutely possible. Improving your credit score is a worthwhile goal to consider as we head into the New Year.
2024 New Year’s Resolution: Build Credit
The base FICO score ranges from 300 to 850. In general, credit scores above the 670 mark are considered good. While the average FICO Score is relatively high, at 714 out 850, according to Experian, many Americans still have less than ideal credit.
If you have a bad credit score, that can be a dealbreaker for major purchases. For example, most mortgage lenders require relatively high credit scores to finalize a home loan. But even if you have good enough credit to get a loan, a higher credit score can help you unlock lower interest rates, which could lead to thousands of dollars saved in interest costs over the loan term.
To illustrate how valuable a good credit score can be, consider two different home buyers. With a 620 starting credit score, Sally purchased a new vehicle with an auto loan of $30,000 and a 9% interest rate. She pays $622.75 per month for 60 months and will pay $7,365.04 in interest over the life of the loan.
In contrast, Meredith, with an 800 credit score, purchased a new vehicle with a $30,000 auto loan at a 6% interest rate. She pays $579.98 per month for 60 months and will pay $4,799.04 in interest over the loan term. Meredith’s higher credit score saved her thousands in interest charges.
If you are planning to finance a major purchase, working on your credit score in advance can help you tap into significant savings.
Even if you have good enough credit to get a loan, a higher credit score can help you unlock lower interest rates, which could lead to thousands of dollars saved in interest costs over the loan term.
How to Build Credit in 2024
Building credit for beginners in 2024 is an achievable goal that can pave the way to more affordable financing. Below are some strategies to help you give your credit score a boost.
Evaluate your current credit score
Start by taking a look at your current credit score. Understanding where you are starting from can help you track progress along the way.
Review your credit report
You can get a free copy of your credit report from annualcreditreport.com. When you have the document, review it for any mistakes. If you spot a mistake on your credit report, notify the credit bureaus immediately.
In general, mistakes on your credit report include negative information that drags your credit score down. By having the mistakes removed, you might see a boost to your score. You can also use some credit builder tools to help give you the hike you're after.
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Commit to on-time payments
A positive payment history is the most heavily weighted component of your credit score. With this in mind, committing to on-time payments can have a significantly positive impact on your credit score.
If you might forget about your payment deadlines, consider setting up automatic payments. This helpful assistance from technology can ensure you never miss a payment again.
Pay down revolving debts
Maxing out your revolving debts, like credit cards, can have a negative impact on your credit score. The solution is to pay down your revolving debts.
Ideally, it’s best to keep your credit utilization ratio below 10%. In other words, if you have a $1,000 credit limit, a $100 balance would amount to a 10% credit utilization ratio.
The Bottom Line
Building credit can help you unlock better financing terms for future needs. Reviewing your credit report for errors and committing to on-time payments can help you build the credit score you’ve been aiming for in 2024.
While you might be able to obtain financing with less-than-ideal credit, working towards a better credit score can help you tap into lower interest rates on many financing products, like personal loans and auto loans.