Why don’t most people learn about credit and its significance until something goes wrong? You try to apply for that apartment, get a mortgage, buy a new car, or take advantage of a credit card offer and get rejected. You try to figure out why so you can make adjustments, and you quickly discover that your credit history is nonexistent or in shambles. There are multiple options to improve your circumstances, but sticking to those strategies is easier said than done.
Credit Reports And Scores
Let’s start with the basics. Financial institutions, creditors, and service providers report your account to credit bureaus. The data varies but often includes the type of account, balance, and payment history. Credit bureaus compile this information from various sources to create a report or record of your financial history.
They use factors such as account types, lengths, credit limits, outstanding balances, and pay frequency to calculate a score between 300 and 850. The higher your score is, the more credible you appear to creditors, service providers, and other establishments.
Financial Habits And Your Credit
A credit report serves as a financial record of your ability to manage accounts responsibly. You’re labeled high-risk if your report shows that you open and close accounts frequently, miss payments, max out your credit cards, or fail to uphold your responsibilities altogether. You will have a hard time getting approved for products and services.
While some people simply lack the financial management skills to stay on top of their accounts, others fall on hard times, and their finances take a hit. Either way, the only solution is to boost your credit by adopting healthy habits and being savvy with your finances.
Short-Term Credit Starter Loans
What happens when you don’t have any available credit cards, savings, or other resources and your car is stuck in the mechanic’s shop with a $700 price tag? There are companies out there that do provide emergency loans for bad credit, and some companies will help you improve your credit score as you pay back your loan, provided you make all of your payments on time. This is a great option while you work on the rest of the options below.
Some Online Banks Make Credit Management Easier
Whether it’s because their overhead is lower or they’re just trying to compete with bigger names, some online banks pride themselves on simplifying finances for the everyday consumer. Its many products and services serve as tools that, when used efficiently, can improve your credit. Here are a few ways they might make credit management easier:
- Establish Or Rebuild Credit – The most instrumental feature these types of banks offer customers is a credit builder. It’s a convenient way to use everyday spending to boost your credit score. You deposit money into the credit builder and use your debit card when making purchases. The bank places a hold on funds in this account and registers it as a one-time payment that gets reported to credit bureaus. Credit bureaus view it as positive payment history, which increases your score over time.
- Borrow Affordably – Many online banks offer lines of credit to eligible customers. They can receive up to three times their salaries at a 12% APR. Lines of credit are also revolving, meaning you can use it repeatedly for whatever you need (as long as you keep the balance below the maximum limit). It eliminates applying for or using credit cards and loans with high-interest rates and fees. Ultimately, a line of credit from an online bank may help to reduce credit inquiries and high credit utilization rates, which can hurt your credit history and score.
- Develop Healthy Financial Habits – They may call them many names, but online banks often offer sub-accounts, making organizing, monitoring, saving, and spending your money more manageable. You can add and customize these sub-accounts and distribute your funds to cover everyday purchases and savings goals. These sub-accounts give users a clear picture of where their money is going, how they can cut back, and encourage positive habits like saving for emergencies and life goals. When you have more knowledge in these areas, you can make informed decisions that keep your credit in good standing.
Credit management is, by far, one of the most challenging aspects of achieving financial wellness. As credit is essential and integrated into multiple areas of life, you must learn how to get and keep positive credit histories and scores. Although it won’t be a breeze, perhaps an online bank can provide invaluable resources to make improving your credit easier to achieve. Consider using these tools to boost your credit and move closer to financial stability.