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Good Credit Habits

Explore ways build a strong credit history

Good credit helps with more than borrowing: it can factor into everything from renting an apartment and getting a cell phone, to landing a job. Lenders, landlords, utility providers, and employers can all review credit reports when making decisions about you. Establishing good credit habits is essential, so that you can build and improve your credit history and credit score.

Pay your bills on time

Prioritize and schedule your monthly payments, making sure to pay at least the minimum balance every month on all your accounts. Your payment history makes up approximately 35% of your credit score, so making timely payments is an important way to improve your credit score. 

It’s a good idea to have your credit card bill paid automatically on the due date, in which case you might want to set up automatic monthly payments. Or, check into online bill pay to conveniently pay all your bills in the same place, at the same time.

Keep track of your credit balances

Stay on top of how much you’ve borrowed against your available credit and make sure to stay within your credit limit — and your budget. Keeping track of your spending will help you avoid maxing out your credit cards, exceeding your credit limit, or missing payments.

One great way to manage your balances is to use online banking to view your monthly credit card statements. You can also set up text or email alerts to help you monitor your spending, track purchases, and more.

 Credit tip 

You can help maximize your credit score by reducing your usage to less than 30% of your credit limits on your credit cards and lines of credit.

Manage your debt-to-income ratio

Compare how much you spend on your monthly financial obligations (like loan payments, rent payments, etc.) against your income. Lenders use your debt-to-income ratio to assess your ability to pay back any new debt. Keeping your obligations much lower than your income helps ensure a lower DTI ratio, which can make it easier for you to qualify for new credit.

It’s helpful to create a budget to track and plan your spending.

Contribute to an emergency fund

In addition to a regular contribution to your savings account, it’s a good idea to set money aside every month for an emergency fund. This helps ensure that you’ll be able to meet your credit obligations and unexpected expenses, if your situation changes.

One way to simplify saving for your emergency fund is to set up recurring transfers into a savings account through your bank.

Wells Fargo Online — Transfers

While it can be challenging to save when you have other financial obligations, you can learn how to pay yourself first, and better prepare for the unexpected, so that you have the funds you need if and when a situation arises.

Practice making payments before taking on new debt

Find out from a lender how much your estimated monthly payments would be for a new loan, then transfer this amount into a separate savings account for 3 – 4 months. If you can comfortably handle this cost, you can probably afford these payments. Plus, at the end of the practice period, you’ll have money in your savings that you can use to make a down payment, lower the amount you borrow, or put into an emergency fund.

Avoid maxing out credit accounts

Keep track of your credit transactions, especially your credit card activity. Check that you’re not exceeding or maxing out your credit line, since this can reflect negatively on your credit report. If you’re a Wells Fargo customer, you can set up different types of alerts (such as email and mobile) and other services to remember upcoming payments, so that you’re managing your credit usage responsibly.

Wells Fargo Online — Alerts

Monitor your credit reports

Review your credit reports at least once a year with all three national credit bureaus: Equifax, Experian, and TransUnion to ensure they’re accurate. You’ll be able to catch any errors or fraud and correct them before they impact your credit history or credit score.

Get a free annual credit report

Ready to borrow?

If you’re thinking about borrowing, now’s a good time to assess your financial situation.

What to Consider Before Borrowing

Debt-to-income (DTI) ratio

Your debt-to-income ratio is the percentage of your monthly income that goes toward paying down debts and other monthly expenses like rent.