Better Financial Habits: Debt and Credit Management Strategies

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More than just loans, having good credit may affect everything from renting an apartment to purchasing a cell phone. Utility companies, renters, and lenders may consult your credit record when determining your eligibility and loan interest rate. You must develop healthy credit practices to create and enhance your credit history and Score.

Pay your bills Promptly.
Organize and plan your monthly payments, and pay at least the minimum amount due on all of your accounts on time each month. When feasible, try to pay more than what is required. This aids in debt repayment more quickly, reduces interest costs and might raise your credit score. Making on-time payments is crucial in raising your credit score because your payment history accounts for around 35% of your FICO® Score.

You could gain by setting up automatic payments so that your credit card account is paid on or before the due date. You might also look into online bill payments to conveniently pay your payments.
Set up reminders for when your payments are due.
Avoid using all of your credit.

Observe your credit activities, particularly your credit card usage. Please verify that you are not using all of your credit limits or exceeding them, as this might hurt your credit score. If you have a Wells Fargo account, you may set up various notifications (including email and SMS) and other services to recall impending payments, ensuring that you are appropriately using your credit.

Maximizing your credit score could be possible if you keep your credit usage rate around 30%.

Control the debt-to-income ratio.

To help you assess how much you spend on your monthly recurring debts (such as loan payments, rent payments, etc.) against your income, use our online debt-to-income calculator2. Lenders evaluate your capacity to repay any additional debt using your debt-to-income (DTI) ratio. A lower DTI ratio is achieved by keeping your debts much below your income, which may make it simpler for you to get new credit.

Making a budget will help you track and plan out your expenditures.

Add Money to an emergency fund.
Setting money away each month for an emergency fund is a smart idea in addition to making monthly contributions to your savings account. This makes it more likely that, even if your circumstances change, you will be able to pay your debts and unforeseen bills.

Create periodic transfers into a savings account with your bank to make saving for your emergency fund easier.

While it might be difficult to save when you have other debts to pay, you can learn how to put your needs first and be more prepared for unforeseen events.

Before taking on new debt, practice making payments.
Find out from a lender your anticipated monthly payments for a new loan, then put that sum into different savings accounts for three to four months. You can probably afford these payments if you can easily handle this expense. Additionally, you’ll have money in your savings at the end of the trial period that you may use to pay off debt or put toward an emergency fund.

Keep an eye on your credit reports.
To ensure they are correct, examine your credit reports with Equifax®, Experian®, and TransUnion® at least once a year while keeping an eye on your credit score. Before they affect your credit history or credit score, you’ll be able to identify any mistakes or fraud and fix them.

Tip: A free yearly credit report is available.

To evaluate your credit history throughout the year, consider requesting a credit report from a different provider every four months. Your Score won’t ever be impacted by requesting your credit report.
Understand your credit score.

You may now focus on your FICO® Scores after confirming that your credit reports are clear of errors. A better FICO® Score can ease and lower the cost of obtaining credit.

Consumers can choose from a wide variety of credit score services. 90% of lenders utilize FICO® Scores, which are different from VantageScores.

Be careful while canceling accounts.
Closing credit accounts may reduce your available credit and may temporarily drop your credit score since credit ratings consider your credit usage ratio. The average age of your credit file may also be affected by this. The best course for you may be to close the account if you want to avoid the temptation of charging up a balance. Otherwise, if an account has a solid payment history and a little or negative amount, you might choose to keep it open.

Maintaining active accounts will also assist you in lengthening your credit file, contributing to 15% of your FICO® Score.

Ensure your security against fraud and identity theft.

Apply for credit only through reputable banks and credit card providers; do not use the internet or social media advertisements. Avoid paying application fees while applying for a loan or credit card. Be skeptical of businesses that profess to help you with your debt difficulties, especially if they charge a fee.

Never answer a caller’s request for your Social Security number, PIN, or other account information unless you call them first.

Resources:

https://www.wellsfargo.com/goals-credit/smarter-credit/improve-credit/good-credit-habits/

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