4 Habits People With Good Credit Possess

Introduction

Having good credit comes with a lot of benefits. But it’s not something you’re born with, and it’s not about luck. As those who already have good credit know, it requires hard work, commitment, and dedicated consistency.

Some of their strategies might seem intuitive, but others aren’t quite so obvious. They’re more like secret treasure chests where you only get access to the riches inside if you can figure out where the key is hidden. But you’re in luck, because you’ve just found that answer key.

People with good credit scores usually share a few traits that help them achieve and maintain those scores — including the following four common habits.

Habit #1 – They Create a Budget and Stick to It

Nobody really likes being told to create a budget. And most people probably don’t really enjoy doing it, either. But this one move can make a huge difference to your financial life.

Creating a budget is one of the best ways to avoid overspending and live within your means. It lets you see what’s coming in and going out — specifically, how much income you can count on each month and how much you can expect to pay in monthly expenses.

A tried-and-true strategy is to figure out your wants versus needs, and it’s best to start with your needs. So, first you calculate what you have to pay each month for things like rent or mortgage, utility bills, car payments, gas or EV charging, childcare, food, and other necessities.

You can do this by making a simple checklist, writing it all on a whiteboard, or building a full spreadsheet that helps you run the numbers.

Comparing those expenses to your income should give you a solid idea of what’s left over, and that’s where you can consider your wants. A good plan is to set aside a discretionary budget before the month begins, which firmly defines how much you could spend on entertainment and other fun stuff. Not a penny more.

Rewarding yourself with a small treat every now and then is fine, as long as you keep your pre-determined spending limits in check. That’s why the second step after making your budget is sticking to it. Where most people fail is waiting until they see their bank balance or credit card statement to realize that they’ve spent more than they can afford.

Habit #2 – They Stay Organized and Have a Payment System

Payment history is the most important factor in credit score calculation, and missing even a single payment can lower your credit score. On the flip side, consistently paying your bills on time can go a long way toward increasing that credit score.

People with the best credit scores know this, so they have a few methods to stay on top of due dates and payment requirements.

One of them is simply being organized and keeping track of spending and due dates. This could involve setting calendar reminders or banking app notifications when payments have to be made. Then it’s just a matter of following through and making those payments.

If you’d rather be more hands-off, another technique is setting up automated payments, like AutoPay through your credit card or bill pay from your bank. These tools help you make sure payments are delivered on time without having to think about it. Most credit card issuers will even let you set your own due date to fit your needs, whether that’s spacing out your bill payments or aligning them with your scheduled payday.

Habit #3 – They Keep Their Credit Utilization Ratio Low

Your credit utilization ratio measures how much revolving debt you’re carrying in relation to your credit limits. It applies to each individual card as well as a total of all your accounts, which is called aggregate utilization.

Whichever way it’s calculated, your credit utilization ratio is heavily weighted in credit scoring. Lower utilization typically aligns with a higher credit score, and vice versa.

Because of that, people with good credit are careful to keep this ratio on the low side, and we do mean low. The expert recommendation is to only use 30% or less of your credit lines. That means not charging more than $300 to a card with a $1,000 credit limit.

If you combine this habit with the first one, following your budget is a great way to keep your utilization in check. Making purchases willy-nilly and not paying attention can cause even those small treats to add up quickly. Suddenly you’re maxed out without even realizing it.

And those large outstanding credit card balances tend to snowball out of control. So accumulating debt that you can’t pay off (or at least make the minimum payments on) can quickly take a bite out of your finances — and your credit score.

Habit #4 – They Closely Monitor Their Credit Activity

Keeping an eye on spending is crucial, but it doesn’t stop there. Identity theft and other forms of fraud seem to be running rampant these days, so those with good credit tend to stay informed and alert. That means carefully checking your account statements for signs of fraud, like purchases you don’t remember making. Unauthorized charges can be disputed with the credit card company once they’re identified.

And then, regularly checking your credit reports for errors and fraudulent accounts is one of the best ways to stay on top of what’s happening with your overall credit profile. Look for any factual errors in your personal info, like name, address and date of birth. Also look for incorrect reporting, like a missed payment that you know you made on time. And finally, check for accounts or activity that don’t belong to you.

Federal law says you’re entitled to a free copy of your credit report from each of the three major credit bureaus once a year. But you can actually get them every week now at AnnualCreditReport.com. If you find any suspicious accounts or other incorrect information, you can initiate a dispute with the corresponding bureau to set the record straight.

Bottom Line

Good credit isn’t an accident. Those who have it usually work diligently at staying on track. If you’d like the same results, you can take a page from the book of people who’ve achieved outstanding credit and adopt some of the habits that helped get them there.

A credit card can be a good tool, as long as you keep spending under control and pay on time, every time. You’ll also want to see if you pre-qualify before applying for a card, which doesn’t impact your credit score unless you decide to go ahead and submit the application.