Course Content
Introduction To This Course
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0.1 Introduction to Financial Literacy Course
01:25
0.2 Course Outline
Module 1: Introduction to Financial Literacy
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1.1 Why Financial Literacy Matters
04:54
1.2 Setting Financial Goals
05:27
1.3 Basic Financial Terminology
06:36
Module 2: Understanding Income and Expenses
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2.1 Sources of Income
06:07
2.2 Tracking Expenses
05:29
Skip this Lesson, LMS won’t let me delete it. buggy right?
05:42
2.3 Creating a Personal Budget
04:17
Module 3: Saving and Investing Basics
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3.1 The Importance of Saving
06:26
3.2 Introduction to Investing
05:53
3.3 Understanding Interest and Compounding
05:45
3.4 Understanding Fees and Commissions
05:25
3.5 Investing vs. Trading
06:01
3.6 Cryptocurrency
07:13
Module 4: Assets vs. Liabilities
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4.1 Defining Assets and Liabilities
05:38
4.2 Building Wealth with Assets
06:38
4.3 Avoiding Debt and Liabilities
00:00
Using Good Debt to Build Wealth
Module 5: Smart Spending and Budgeting
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Needs vs. Wants
5.2 Creating and Sticking to a Budget
06:45
Avoiding Impulse Purchases
Module 6: Banking and Managing Accounts
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Types of Bank Accounts
Managing Your Bank Accounts
Online and Mobile Banking
Module 7: Credit and Debt Management
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Understanding Credit
Building and Maintaining Good Credit
Managing and Paying Off Debt
Snowballing vs. Avalanche Methods
Module 8: Investing for the Future
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Introduction to Low-Fee Index Funds
Retirement Accounts for Young Adults
Diversifying Your Investment Portfolio
Module 9: Choosing Financial Advisors
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Types of Financial Advisors
Questions to Ask Your Financial Advisor
Avoiding Predatory Practices
Module 10: Financial Planning and Goal Setting
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Creating a Financial Plan
Reviewing and Adjusting Your Plan
Staying Motivated and Accountable
Module 11: Financial Safety and Security
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Protecting Personal Information
Recognizing and Avoiding Scams
Safe Online Shopping Practices
Module 12: Real-World Financial Scenarios
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Handling Unexpected Expenses
Making Big Purchases Wisely
Draft Lesson
Module 13: Conclusion and Next Steps
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Reviewing Key Concepts
Planning Your Financial Future
Resources for Continued Learning
Appendices
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Glossary of Key Terms
Financial Calculators and Tools
Financial Literacy: What School Should’ve Taught About Money

Lesson 7.2: Building and Maintaining Good Credit

Welcome to Lesson 7.2! In this lesson, we’ll discuss building and maintaining good credit, which is essential for financial stability and access to favorable borrowing terms. We’ll explore practical strategies to establish a positive credit history and tips to keep your credit score in good shape over time.

Why Good Credit is Important

Good credit is crucial for several reasons:

  • Access to Better Borrowing Terms: Good credit allows you to qualify for loans and credit cards with lower interest rates and better terms, saving you money over time.
  • Increased Financial Flexibility: A good credit score gives you more options when it comes to financing major purchases, such as a home or car.
  • Enhanced Job Prospects: Some employers check credit reports as part of the hiring process, and a good credit history can reflect positively on your financial responsibility.
  • Lower Insurance Premiums: Insurance companies often use credit information to set premiums, and good credit can result in lower rates.
  • Security Deposit Waivers: With good credit, you may be able to avoid security deposits for utilities or rental properties.

Steps to Building Good Credit

Building good credit involves responsible credit use and financial management. Here are some steps to help you establish a positive credit history:

1. Open a Credit Account

Start by opening a credit account, such as a credit card or a secured credit card, to begin building your credit history.

  • Action Steps:
    • Apply for a credit card from a reputable issuer. If you’re new to credit or have no credit history, consider a secured credit card that requires a security deposit.
    • Use the credit card for small purchases that you can pay off in full each month.
    • Ensure the credit card issuer reports your payment activity to the major credit bureaus (Equifax, Experian, and TransUnion).

2. Make Timely Payments

Payment history is a major factor in your credit score, so always pay your bills on time to build a positive credit history.

  • Action Steps:
    • Set up automatic payments or reminders to ensure you never miss a due date.
    • Pay at least the minimum payment required on your credit accounts each month to avoid late fees and negative marks on your credit report.
    • Pay your balance in full whenever possible to avoid interest charges and debt accumulation.

3. Keep Credit Card Balances Low

Maintaining low balances on your credit cards helps keep your credit utilization ratio low, which positively impacts your credit score.

  • Action Steps:
    • To maintain a low credit utilization ratio, try to keep your credit card balances below 30% of your credit limit.
    • Pay down your balances regularly and avoid maxing out your credit cards.
    • If possible, pay off your credit card balance in full each month to reduce your utilization and avoid interest charges.

4. Build a Mix of Credit Types

Having a diverse mix of credit accounts, such as credit cards, installment loans, and retail accounts, demonstrates responsible credit management and can boost your credit score.

  • Action Steps:
    • Consider adding different types of credit to your credit profile, such as an auto loan, personal loan, or mortgage.
    • Ensure you can handle the additional debt responsibly and make payments on time.

5. Monitor Your Credit Report

Regularly check your credit report to ensure the information is accurate and to catch any potential errors or signs of identity theft.

  • Action Steps:
    • Request a free copy of your credit report from each of the three major credit bureaus annually through AnnualCreditReport.com.
    • Review your credit report for any inaccuracies, such as incorrect personal information, accounts you don’t recognize, or late payments you didn’t make.
    • Dispute any errors with the credit bureaus to have them corrected.

6. Avoid Frequent Credit Applications

Applying for multiple credit accounts in a short period can negatively impact your credit score, as it may indicate financial instability.

  • Action Steps:
    • Limit your applications for new credit to only when necessary, and space them out over time.
    • Before applying for new credit, research the lender’s requirements to ensure you’re likely to be approved, avoiding unnecessary hard inquiries.

7. Keep Old Accounts Open

Older credit accounts contribute positively to the length of your credit history, so keep them open and active whenever possible.

  • Action Steps:
    • Avoid closing old credit accounts, as doing so can shorten your credit history and reduce your available credit.
    • Keep old accounts active by making small purchases and paying them off to prevent them from being closed due to inactivity.

Maintaining Good Credit

Once you’ve built good credit, it’s important to maintain it through responsible credit use and ongoing financial management. Here are some tips to help you maintain good credit over time:

1. Continue Making On-Time Payments

Consistently paying your bills on time is crucial for maintaining good credit. Timely payments reflect positively on your credit history and score.

  • Action Steps:
    • Set up automatic payments or reminders to avoid missing due dates.
    • Pay your bills as soon as you receive them to stay ahead of deadlines and reduce the risk of late payments.

2. Manage Your Debt Wisely

Keeping your debt levels manageable helps maintain a low credit utilization ratio and ensures you can meet your financial obligations.

  • Action Steps:
    • Pay down high-interest debt as quickly as possible to reduce your overall debt burden.
    • Maintain a balance between using credit for its benefits and keeping debt levels low to avoid financial strain.

3. Review Your Credit Regularly

Regularly reviewing your credit report helps you stay informed about your credit status and identify any issues that need attention.

  • Action Steps:
    • Check your credit report at least once a year to ensure accuracy and monitor your progress.
    • Use credit monitoring services to receive alerts about significant changes to your credit report.

4. Plan for Major Purchases

Plan ahead for major purchases that require financing, such as a home or car, to ensure your credit is in good shape when you apply for loans.

  • Action Steps:
    • Review your credit report and score before applying for major loans to address any issues that could impact your approval or interest rates.
    • Save for a down payment to reduce the amount you need to borrow and improve your chances of securing favorable loan terms.

5. Protect Your Personal Information

Safeguarding your personal information helps prevent identity theft and fraud, which can damage your credit and financial health.

  • Action Steps:
    • Use strong, unique passwords for online accounts and change them regularly.
    • Enable two-factor authentication for an extra layer of security on your accounts.
    • Shred sensitive documents before discarding them to prevent identity theft.
    • Be cautious about sharing personal information and report any suspicious activity immediately.

Common Mistakes to Avoid

Here are some common mistakes to avoid when building and maintaining good credit:

  • Missing Payments: Even a single missed payment can negatively impact your credit score and remain on your credit report for up to seven years.
  • Carrying High Balances: High credit card balances increase your credit utilization ratio and can lower your credit score.
  • Closing Old Accounts: Closing old accounts can shorten your credit history and reduce your available credit, which may negatively impact your score.
  • Applying for Too Much Credit: Multiple credit applications in a short period can lead to numerous hard inquiries, which can lower your credit score.
  • Ignoring Your Credit Report: Failing to review your credit report regularly can result in unnoticed errors or fraudulent activity that may harm your credit score.

Conclusion

Building and maintaining good credit is essential for achieving financial stability and accessing favorable borrowing terms. By following the strategies outlined in this lesson, you can establish a positive credit history, improve your credit score, and maintain good credit over time. In the next lesson, we’ll explore how to understand and manage credit card debt effectively. Let’s continue our journey towards financial literacy!

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