Financial Capability Month: 7 Ways to Take Control of Your Credit
April is Financial Capability Month, a time to focus on building the skills and confidence people need to manage their money and reach their financial goals. Started in 2004 as National Financial Literacy Month, it has grown into a national effort to promote financial education and taking practical steps, whether big or small, toward financial stability.
One important aspect of overall financial well-being is managing your credit. Your credit can affect your ability to rent an apartment, get a car, turn on utilities without a deposit, or qualify for lower interest rates. But what exactly is credit?
What is credit?
Credit is your ability to borrow money and pay it back over time. When you use a credit card to make a large purchase or take out a car loan, you’re using credit. Lenders keep track of how you use credit—whether you make payments on time, how much you owe, and how long you’ve been using credit. This information becomes your credit report and credit score, which banks, car dealerships, and other businesses use to determine how you handle the responsibility of using credit.
It doesn’t take a lot of money to start building credit or to improve your credit score. Consistency and planning are much more important. Here are 7 practical tips to help you strengthen your credit this Financial Capability Month.
1. Check Your Credit Report Regularly
Each year, you can get a free credit report from the 3 major credit bureaus (Equifax, Experian, and TransUnion) via the AnnualCreditReport.com website.*
You can request all 3 credit bureau reports at the same time, or request one report at a time. Make sure to check your report at least once a year. Knowing what’s on your report can help you catch any mistakes and set goals that make sense for you.
Pro Tip: To monitor your credit throughout the year, try requesting each report (Equifax, Experian, and TransUnion) separately, about 4 months apart.
*While there are other credit bureaus, and other look-alike credit report sites, AnnualCreditReport.com is the official site verified by the Consumer Financial Protection Bureau (CFPB)to get your free credit report as authorized by law.
2. Pay What You Can, On Time
Payment history is one of the biggest factors in your credit score. Paying bills on time is one of the best ways to build credit. If you can pay the full amount you owe, that will help your credit the most. If you can’t pay the full amount, make sure you pay at least the minimum amount. Even paying a little more than the minimum when you can will help over time. Setting up automatic payments or reminders can help you stay consistent.
3. Keep Balances as Low as Possible
If you use credit cards, try not to use the maximum amount the cards can be used for. Using too much of your available credit can hurt your score. Some experts recommend aiming for balances that are 30% under your credit limit.
Here’s an example:
You have two credit cards—one has a $500 limit and the other has a $1,500 limit. Your total available credit is $2,000. Using the 30% guideline, try to keep your total balance under $600.
4. Start Small to Build Credit
The length of time you’ve been using credit also informs your credit score. If you don’t have credit yet, that’s okay! Options like secured credit cards or small credit-builder loans can help you get started building positive credit history without over-extending your available credit.
5. Make a Plan to Pay Down Debt
If you have debt, take one step at a time to pay it down. You may decide to start with your smallest balance so that you can pay it off in a few months, get a quick win, and stay motivated to keep going. Or … start with the balance that has the highest interest rate so that more of your payment goes to the balance you owe rather than the interest. The “right way” to pay off debt is to 1) choose a payment strategy that you can stick with and 2) make your payments on time.
6. Be Careful About New Credit
Each time you apply for a new loan or credit card, it’s noted as a “hard inquiry” in your credit history. A lot of hard inquiries in a short time can hurt your credit score. Do your best to apply for credit only when you really need it, and space out applications as much as possible.
7. Ask Questions and Learn as You Go
Understanding how credit works can feel confusing. That’s normal! But don’t let it discourage you. Keep learning about credit so you can avoid extra costs and make choices that work for you and your family.
You’re Not Alone—Take the Next Step with CAP-HC
At Community Action Partnership of Hennepin County (CAP-HC), we offer free Financial Wellness Workshops and one-on-one Financial Counseling to help you:
- Understand your credit
- Make a plan to pay down debt
- Build habits that fit your life and budget
Our programs are designed to be practical and easy-to-understand so that you feel supported as you take the next step on your journey toward financial stability.
Taking one small step toward better credit can make a big difference over time. Sign up for a Financial Wellness Workshop or request a personalized Financial Wellness Counseling session.