Financial independence means different things to different people. Maybe it’s having a certain amount of money in the bank, retiring early or becoming a homeowner.
Regardless of our personal definitions, a common factor that can help us on our journey to financial independence is having strong credit. Responsibly managing your credit will impact much more than just borrowing. It can also affect your day-to-day routine matters, such as having utilities connected, getting a cellphone or even applying for a job.
A 2015 survey revealed that 51 percent of Americans are proud of their credit score, yet at least 41 percent grade their overall understanding of credit score a “C,” “D” or “F.” Since having a good credit score and understanding how it works is an important step in achieving your financial independence, here are five ways in which you can take control of your credit and declare financial independence.
1. Monitor your credit reports: It is important that you review your credit reports at least once a year with all three national credit bureaus: Equifax, Experian and TransUnion. Doing so can help you ensure that the information is accurate. Reviewing your credit reports can also catch errors or fraud and correct them before they could impact your credit history.
2. Pay your bills on time: Your payment history makes up approximately 35 percent of your credit score, so making timely payments is important. One way to stay on top of your bills is to prioritize and schedule your monthly payments, and to pay at least the minimum balance every month on all your accounts.
3. Keep track of your credit balances: Always try to stay on top of how much you’ve borrowed against your credit and make sure to stay within your budget and credit limits. One way to manage your balances is to use online banking to view your monthly statements.
4. Manage your debt-to-income ratio: Lenders use your debt-to-income (DTI) ratio to assess your ability to pay back any new debt. By keeping your payments much lower than your income, it can help ensure a lower DTI ratio, which can make it easier for you to qualify for new credit.
5. Avoid maxing out credit accounts: Always make sure that you’re not exceeding or maxing out your credit line, since it can reflect negatively on your credit report. Most lenders offer different types of alerts (such as email and mobile) and other services to remember upcoming payments.
Credit plays such an important role in everyday life and your financial independence. That’s why Wells Fargo announced it will offer free access to FICO® Scores to all its eligible consumer credit customers, factors that impact your score, an interactive history chart of past recent FICO® Scores, along with Wells Fargo credit tips.
So as you celebrate our nation’s independence this year, think about small steps you can take to declare your own financial independence. Even small changes can easily turn into habits that can have a big impact. –lisa frison, vice president, segment manager for Wells Fargo