Daily Local News (West Chester, PA)

Tips to help build your credit and use it responsibl­y

- By Bob Juliano

With interest rates continuing to rise, the need to borrow and use credit responsibl­y is more important than ever to avoid negatively impacting your financial stability.

Borrowing plays an important role in your financial journey, and when used responsibl­y, credit can help you achieve many of your financial goals.

March is National Credit Education Month, but it is more important than ever to stay focused on responsibl­e credit use yearround.

Here are tips to help you build your credit and use it responsibl­y.

Know your credit score and what impacts it

You credit score plays a key role in borrowing, as it will impact the interest rates you’re offered by lenders.

Having a good understand­ing of what impacts your credit score, such as your payment history and length of credit, credit utilizatio­n and credit mix, including installmen­t credit like a car loan and revolving credit like credit cards, is an important step toward building a solid score.

Where possible, try to ensure you’ve built good credit, typically a score of 700+, before borrowing to ensure you’re getting a solid interest rate.

If your score needs some work, there are steps you can take to improve it, like trying to get your debt-to-credit ratio below 30% and building a solid credit mix. Just ensure you’re only opening lines of credit when needed.

Understand your options for borrowing

Typically, credit cards come with a variable interest rate and the Annual Percentage Rate (APR) rises as the Federal Reserve increases the prime rate. If you pay off your balance each month, rising rates are less likely to impact you, but if you’re carrying a balance on your credit cards, the true cost of your purchases could be more than expected as rates rise.

If you’re a homeowner who has seen the value of their house

increase in recent years and has built enough equity in it, a home equity loan or line of credit (HELOC) can be an effective way to borrow for things like home renovation­s with an interest rate that is likely to be lower than that of a credit card.

For homeowners without enough equity in their home or borrowers who do not own a home, a personal loan can be another good alternativ­e for necessary expenses that is also likely to have a lower interest rate than a credit card.

There are many options for borrowing, but it is important to try to only utilize credit and loans for essentials to avoid building up too much debt.

Manage your borrowing responsibl­y

Credit card rewards can provide great bonuses like cash back, airline miles, hotel points and more, but if you’re not able to pay off your balance in full each month, the rewards may not be worth it in the end.

If you find yourself with revolving balances on your cards, consider consolidat­ing the balance on a card that offers a 0% or low introducto­ry rate and pay down as much debt as possible during that window. Just ensure you’ve looked into the fees that may come with balance transfers and the interest rate you’ll receive once the introducto­ry rate ends to avoid any surprises.

Whether you’re saving, spending or borrowing, the most important thing when it comes to your finances is to try to always live within your means and only borrow when necessary.

Bob Juliano is Vice President, Director of Corporate Giving & Financial Literacy at WSFS Bank. He is a financial education expert for the Bank and has taught K-12 financial literacy to thousands of children.

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