Black millennials have put off life events like buying property or starting businesses due to their unique economic challenges. All of us have had to – or will – deal with one financial challenge or another. But for millennials to unravel the financial mess a majority of them experienced growing up, they have had to develop financial literacy to enable them to live through economic inequality and start building generational wealth. Millennials are more educated and more innovative than ever, making up the largest portion of the US workforce. But, for the Black millennial to achieve their financial goals, they have to start by building a good credit score in order to position themselves for wealth-generating opportunities.

What are the advantages of having a good credit score?

A good credit score (700 and above) provides significant advantages that can save us money and open up new opportunities. For example, we can rent an apartment without paying a large security deposit or finding a cosigner. By factoring in credit-based insurance scoring, we can save money on car or homeowner insurance, depending on the state we live in. In addition to these benefits, a high credit score qualifies us for the lowest interest rates and fees for new loans, which can save us hundreds or thousands of dollars over the course of a loan. High score borrowers can also get personal loans that are 122.2% higher on average than people with lower credit scores, which can be used to consolidate debt or refinance credit card debt. With a high credit score, we are more likely to meet lending approval guidelines if we ever need to borrow money.

So, how do we improve our credit score? We must be aware of what makes up a credit score, which includes payment history (35%), amount owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%). We should pay our bills on time every month, maintain a solid credit utilization ratio, and have a longer credit history to reinforce credibility. It is also important to have a good mix of credit and avoid applying for too much credit too often. By following these practices and the tips listed below, we can build and maintain a high credit score that will enable us to build generational wealth.

1. Know where you stand

The first step in building a perfect credit score is to know your current credit standing. Obtain your credit reports from the three credit bureaus (Equifax, Experian, and TransUnion) and review them for errors. Dispute any inaccuracies on your reports, and follow up with the credit bureaus to ensure that they are corrected. Knowing where you stand is the foundation for creating a plan to improve your credit.

2. Pay your bills on time

Paying your bills on time is the most crucial factor in building and maintaining a perfect credit score. Late payments, even by one day, can negatively affect your credit score. Set up automatic payments or create reminders to help you stay on top of your bills. Late payments can also lead to late fees and increased interest rates, which can compound over time.

3. Keep your credit utilization low

Credit utilization is the ratio of your credit card balances to your credit limits. A high credit utilization rate can negatively affect your credit score. A good rule of thumb is to keep your credit utilization rate below 30%. If you have a high credit utilization rate, pay down your balances, and consider asking your credit card issuer to increase your credit limit. However, do not use this as an opportunity to spend more, and ensure that you can pay off the balance each month.

4. Build credit history

Building credit history is essential to building a perfect credit score. The length of your credit history is a factor in determining your credit score. Start building credit by getting a credit card or becoming an authorized user on someone else’s credit card. Ensure that the card issuer reports your activity to the credit bureaus. Use your credit card responsibly, and make payments on time to start building a positive credit history.

5. Be strategic about applying for credit

Each time you apply for credit, it generates a hard inquiry, which can negatively impact your credit score. Limit the number of times you apply for credit and space out your applications. Applying for multiple credit cards in a short period can be a red flag to potential lenders and can negatively affect your credit score.

6. Monitor your credit regularly

Regularly monitor your credit reports and scores. Set up alerts for any changes or unusual activity. Monitoring your credit can help you identify errors or fraudulent activity and address them before they negatively impact your credit score.

Conclusion

Building a perfect credit score requires discipline and strategic planning. Start by knowing where you stand and taking steps to improve your credit standing, such as paying your bills on time, keeping your credit utilization low, building credit history, and monitoring your credit regularly. Remember that building a perfect credit score is a journey, and it takes time and effort, but it is possible. With the right strategies and mindset, you can achieve financial success and stability.