Building strong financial habits is always a good idea. But when it comes to your credit score, not every smart move counts. In fact, many habits that help you feel financially secure have no effect on your credit file at all.

That does not mean they are worthless. These habits can help you avoid financial stress, stay on track with bills, and build long-term stability. However, credit scores are based only on specific types of credit activity, so many of your everyday financial choices are not reflected.

1. Budgeting and tracking your spending

Keeping a budget helps you manage your income, reduce unnecessary expenses, and plan ahead. But your credit score does not measure how well you manage your cash flow or how closely you stick to a budget.

Even so, consistent budgeting can make it easier to stay on top of bills and avoid financial strain. It does not directly affect your score, but it may help support other habits that do.

2. Building a savings cushion

Having emergency savings is one of the most important things you can do for your financial health. However, your savings account balance is not included in any credit score calculation.

Saving money does not directly affect your score, even if it gives you more financial flexibility. It may help you avoid missed payments or the need to borrow, but the act of saving itself is not part of your credit profile.

3. Using debit cards or cash

Spending with debit or cash may help you avoid overspending or interest charges, but it does not create any credit history. Debit card use is not reported to credit bureaus, and neither is cash spending.

If you rely only on non-credit tools to manage your money, your credit report may remain thin or inactive. These habits can support financial control, but they will not build or improve your credit score unless you use a service like Sesame Cash. By enrolling in Sesame Credit Builder, members can build credit by making debit purchases that are reported as on-time payments to help establish credit history.

4. Investing for retirement

Contributing to a retirement account like a 401(k) or IRA is a smart long-term move, but it does not affect your credit score. These accounts are not loans or credit products; credit scoring models do not consider your investments or account balances.

Even with a strong portfolio, your score will not change. Retirement savings build financial security, but are not part of your credit profile.

5. Avoiding all debt entirely

Some people take pride in never borrowing, which can be a responsible lifestyle. But in the eyes of credit scoring systems, no credit history means no credit score.

If you avoid all loans and credit cards, you may find it challenging to qualify for credit if you ever need it. You may prefer to live debt-free, but remember that credit activity is required to build a credit file.

6. Couponing and comparison shopping

Clipping coupons, price checking, and planning your purchases are smart ways to stretch your money. But none of these habits are connected to your credit report.

These strategies may help you spend less or save more, but they do not directly affect your credit score.

7. Saving for large purchases

Setting aside money for big expenses like travel, appliances, or home repairs may be a smart way to avoid debt. Paying from savings can be satisfying and help you stay financially grounded.

But saving enough to buy a car or a home outright may take years. In some cases, it may not be realistic at all. Strong credit can be the key to moving forward without added financial strain.

Integrating good credit behavior into your money management habits

Strong money management habits like saving, budgeting, and paying bills on time help you stay financially stable. But if you are not using credit accounts, these habits typically do not affect your credit score.

There are limited exceptions. Rent and utility payments are usually not reported to credit bureaus unless they become seriously overdue. Some third-party services, such as Experian Boost or Credit Sesame’s rent reporting feature, may allow certain payments to appear on your credit file. These services are optional and apply only to specific credit scoring models.

Once you begin using credit cards, loans, or other types of borrowing, credit behavior becomes part of your overall financial strategy. At that point, habits like paying on time, keeping balances low, and managing accounts responsibly are just as important as saving and budgeting.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

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Increased financial stress for households

The U.S. job market is showing signs of strain. In May 2025, the Bureau of Labor Statistics (BLS) reported that the economy added 139,000 jobs, a drop from the previous month and well below the monthly average gain for the past year. Earlier estimates for March and April were also revised downward, suggesting a broader slowdown in employment growth.

Not everyone will feel the effects of a slowing job market, but it can lead to longer job searches, more competition, and slower wage growth in some industries. These changes may create challenges for some households trying to maintain financial stability.

Does reduced income affect your credit score?

Nothing happens to your credit score as a direct result of reduced income. However, income disruption, whether temporary or long-term, can lead to financial strain. For some, that may make it more difficult to stay current on payments, particularly on credit cards, loans, or other recurring obligations. Late payments are commonly reported to credit bureaus and may negatively impact credit scores.

Others may continue making payments but rely more heavily on credit to cover expenses. That can increase their credit utilization ratio, which may also influence credit scores. Even individuals who stay current on bills could see changes to their score if balances grow significantly or if lenders reduce available credit in response to economic conditions.

Remember that missed payments are one of the most common causes of credit score damage. Managing your budget carefully and making at least the minimum payments on time can help you avoid negative marks like delinquencies or collections.

Protect your credit in an uncertain job market

No one can fully predict how the economy will evolve or how it may affect your credit, but it is always wise to adopt good personal finance and credit management practices.

• Consider building or rebuilding an emergency fund. Having savings to cover a few months of essential expenses can reduce reliance on credit during income disruptions.
• Try to make at least the minimum payments on all accounts. Maintaining a positive payment history is one of the most important factors in credit health.
• Communicate with creditors early if financial strain is expected. Some lenders offer hardship options that could temporarily pause payments or reduce fees.
• Monitor your credit regularly. This may alert you to changes in your credit report or score, giving you time to respond.

Stay alert to economic changes

Economic shifts can affect credit indirectly. If interest rates change or lending standards tighten, consumers may find it harder to access new credit or secure favorable terms. Tracking trends in your own industry or region may also help you plan ahead, especially if layoffs become more common.

Resources like the Federal Reserve Bank of New York’s Survey of Consumer Expectations offer helpful insight into how people view the job market and inflation outlook.

Some households may be eligible for support through state or federal programs if the employment outlook worsens. Being aware of those options in advance could help reduce stress and avoid late payments in the event of sudden changes. If you are experiencing financial strain, these federal resources may help:

• Hardship help for mortgages and rent
  The Consumer Financial Protection Bureau provides guidance on forbearance, rental assistance, and how to talk to your loan servicer.
• Unemployment benefits
  If you lose your job or have your hours significantly reduced, you may qualify for state-administered unemployment benefits.
• Job training and reemployment support
  The Department of Labor’s CareerOneStop site connects people to local training, career counseling, and job search help.

How good credit habits can help when the job market slows

Credit scores reflect many aspects of financial behavior, including how consistently payments are made and how much credit is being used. The broader economy plays a role in shaping opportunities and risks, but strong personal habits can help you maintain stable credit even during difficult periods.

A slowing job market might bring added pressure, but it does not automatically lead to credit problems. A proactive approach to managing your personal finances through budgeting, planning, and regular credit monitoring can help avert any negative impact and ensure you stay in control of financial outcomes.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

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Life can throw curveballs, and sometimes, your credit score may take a hit. Whether it is missed payments, high credit card balances, or unexpected financial stress, it is never too late to get back on the credit wagon. Rebuilding your credit takes time, but with patience and discipline, you can start making progress. It is never too soon or too late to get back on the credit wagon.

1. Review your credit report for mistakes

Your credit report contains important information about your financial history, and errors can negatively affect your score. Start by checking your credit reports from all three major credit bureaus—Experian, Equifax, and TransUnion—to make sure everything is accurate. If you notice any discrepancies, you may be able to dispute them. This step could help improve your credit score if the errors are corrected.

2. Pay bills on time

One of the most impactful actions you can take is to start paying your bills on time. Late payments can have a significant negative impact on your credit score. Set up reminders or automatic payments to ensure you never miss a due date. Paying on time does not guarantee immediate results, But it is an important step toward improving your credit over time.

3. Catch up on overdue accounts

If you have any past-due accounts, getting them up to date is a good idea. Bringing overdue accounts current can help you avoid additional penalties and may improve your score over time. Work with creditors to set up payment plans if needed and avoid letting accounts fall further behind.

4. Reduce your credit card balances

Your credit utilization ratio, or the percentage of available credit you use, is a key factor in determining your credit score. Ideally, you want to keep your credit utilization below 30%. Paying down high credit card balances could lower your utilization rate and help improve your credit score over time.

5. Consider using a secured credit card

If you’re having difficulty getting approved for a regular credit card, a secured credit card might be helpful. With a secured card, you make a deposit that becomes your credit limit. Using this card responsibly could help you build or rebuild your credit over time.

6. Consider using Credit Sesame’s Credit Builder

If you want to rebuild your credit, the Sesame Cash Credit Builder could be a great option. It is a prepaid debit card that allows you to build your credit history by using it for everyday purchases like groceries, utilities, and subscriptions. Unlike traditional credit-builder loans, this option does not require a credit check or security deposit. It reports your on-time payments to the credit bureaus, helping to improve your credit score over time.

7. Limit new credit applications

Every time you apply for credit, a hard inquiry is made, which can cause a temporary dip in your credit score. Too many applications in a short period of time can signal to lenders that you may be a risk. To avoid negatively affecting your credit score, consider limiting the number of credit applications you submit.

8. Keep old accounts open

The length of your credit history accounts for part of your credit score, so it is important to keep older accounts open. Even if you are not using them, maintaining these accounts can improve your credit score by showing that you have a long history of managing credit responsibly. However, avoid accumulating new fees by keeping only accounts you can manage.

9. Diversify your types of credit

A mix of credit types—credit cards, loans, and mortgages—can potentially help your credit score. Responsibly managing different types of credit over time may positively impact your credit score. Be wary of opening new accounts simply for the sake of diversifying as opening too many news accounts at the smae time can negatively impact your credit.

10. Use credit monitoring

Credit monitoring services can help you track your credit score and be alerted to any changes or suspicious activity. Monitoring your credit regularly can help you spot problems early and take action before they negatively affect your credit. Credit Sesame offers free credit monitoring to help you stay on top of your credit health.

Get back on the credit wagon

Improving your credit score is a gradual process that requires consistent effort and financial discipline. You can start working towards better credit by following these 10 steps—checking your credit report, paying bills on time, reducing debt, and establishing new healthy credit habits. Progress may take time, but taking the first step to get back on the credit wagon could move you toward a healthier financial future.

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Effectively managing personal finances and credit requires understanding how each decision impacts financial health. Personal finance management ensures you allocate your resources wisely to meet both short-term needs and long-term goals. Credit management focuses on building and maintaining a strong credit profile. These financial practices help you avoid financial pitfalls, secure better opportunities, and achieve greater stability.

Personal finance vs. credit management

Some financial behaviors impact credit directly. Others have an indirect effect on your credit and credit score. Here are 25 key financial practices and their significance for personal finance vs. credit management.

Effective personal finance and credit management go hand in hand, empowering you to build a secure and stable future. By adopting habits such as budgeting, saving, paying off debts responsibly, and monitoring your credit, you can navigate financial challenges with confidence. Remember, small, consistent actions today can lead to significant rewards tomorrow. Use these practices as a foundation to make informed decisions and to help achieve your financial aspirations.

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Growing numbers of Americans are seeking help managing credit. The reasons are obvious—debt problems have become a national epidemic. What may be less obvious are the rewards of better credit management.

Getting credit help can do more than get you out of your current debt trouble. It can ultimately leave you better off, with lower expenses and greater peace of mind.

Credit counseling is in demand

Money Management International (MMI) is a nonprofit credit counseling organization. They recently reported a 72% year-over-year increase in people seeking credit counseling. That’s a huge increase and an indication of how quickly consumer debt is getting out of control.

What is credit counseling? It can entail any or all aspects of learning to manage credit more effectively:

• Information about personal finance products
• Help with budgeting to live within your means
• Explanations of credit reports and credit scores
• Education about debt reduction strategies
• Creation of a debt management plan

People often need this kind of help because they struggle to understand financial products and basic money management skills. This is why even people who earn a decent income can find themselves with debt problems. The MMI reported a 73% year-over-year increase in people seeking help among people with above-average incomes.

The need for help with credit is real

People seeking help are being realistic about their financial troubles. Financial statistics indicate that an increasing number of consumers are finding themselves with serious debt problems.

Here are some examples of data in the recent Household Debt and Credit Report from the Federal Reserve Bank of New York:

• Total household debt has reached a record high of $17.69 trillion.
• Credit card debt has been the fastest-growing type of debt over the past year, and it is also typically the most expensive.
• The rate at which credit accounts are becoming seriously overdue has increased for nine straight calendar quarters.
• Young adults, in particular, are having a hard time handling debt, with 18 to 29-year-olds having the highest delinquency rate of any age group.

These statistics show that the growing number of people seeking help means they are being realistic about their difficulties. Being realistic can be the first step towards fixing the problem.

Credit goals and the benefits of reaching them

Here are some of the basic personal finance skills you can get by seeking credit education and how those skills can benefit you:

Keeping up with payments

The monthly flood of bills can get overwhelming at times. One of the first steps is to organize bill payment to make it as efficient as possible. Creating a monthly routine to process your bills can help. Tools like automated bill payment can reduce the paperwork involved and help keep you on schedule.

Living within your means

Budgeting skills help you anticipate expenses so you don’t suddenly fall short. Managing your cash flow is essential to ensuring you have more money coming in than going out. While borrowing can play a constructive role, you should not depend on borrowing to meet routine expenses. Before you borrow, you should budget to see how you will be able to afford the payments.

Getting out of debt

There are various strategies for getting out of debt. Making more than the minimum payments can help you get out of debt more quickly and less expensively. Refinancing and debt consolidation may also be options for making your payments more affordable. Having a clearly defined debt reduction plan can give you a sense of progress instead of feeling stuck in an endless cycle of debt.

Improving your credit score

Improving your credit score can be one way of measuring your progress in handling debt. Increasing your score may also reduce your borrowing costs, making debt reduction easier. Credit monitoring with personalized suggestions can give you the tools and information you need to manage your credit better and hopefully improve your credit score.

Protecting your finances

Getting out of debt trouble is a big step, but it’s not the end of the journey. Another important personal finance skill is learning how to protect yourself and your credit record. It is a good idea to regularly monitor your credit report and know how to address any unexplained changes. It would be best if you also became an educated consumer to choose the most cost-effective financial products. Finally, stay informed so you can be aware of scams that might threaten your accounts.

More people are seeking personal finance help these days, a sign of the serious consumer debt problem in the US. However, those seeking help are making the first move toward solving that problem.

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If you’re trying to build or protect a good credit rating, credit report blemishes won’t help. What may help is a well-written letter. These four letters can help you discover if a debt is your responsibility, help you remove incorrect credit entries or even delete accurate (but damaging) information. 

• Debt validation letter. When you receive a demand for payment from a debt collector, you’re entitled to proof that you owe the money, including the creditor’s name and the date you incurred the debt or last made a payment. 
• Credit dispute letter. If you believe an entry on your credit report is inaccurate or unfair, you can dispute it in writing with all three major credit bureaus.
• Goodwill letter. If you have a solid history with a creditor but miss a payment (more than 30 days past the due date), you might be able to convince it to report your payment as on time. 
• Pay-for-delete letter. You may be able to arrange for a debt collector to delete a collection account by paying some or all of what you owe.

There is no guarantee that a well-written letter will solve your credit woes, but active credit management is more than paying bills on time and keeping credit utilization low. Sometimes you have to address past actions that impacted your credit. You can add these letters to you personal credit management tool kit.

What is a debt validation letter?

The debt validation letter is a written request for information. You might send a debt validation letter if a debt collector has contacted you and you’re not sure if you owe the money or you haven’t yet decided what to do about it.

Debt validation letters are powerful because once you send one, a collection agency has to stop trying to collect until it double-checks the debt information and mails you written verification, including the original creditor’s name and address.

You have 30 days to dispute a debt after the initial contact by a debt collector. During that 30-day period, collectors can try to collect the debt from you until they get your validation request. 

Debt validation letter sample

You can adapt this sample debt validation letter to your circumstance. Do not admit owing the debt or offer any form of payment until the collector validates the debt and you’ve decided what to do: pay it, negotiate it, fight it or ignore it.

Your Name
Current Date
Your Address

Debt Collector Name
Debt Collector Address

Re: Account Number (if you have it)

Dear Debt Collector Name:

I am responding to your contact about a debt you are trying to collect. You contacted me by (phone/mail) on (date) and identified the debt as (any information they gave you about the debt). Please supply the information below so that I can be fully informed:

Why you think I owe the debt and to whom I owe it, including:

• The name and address of the creditor to whom the debt is currently owed, the account number used by that creditor, and the amount owed.
• If this debt started with a different creditor, provide the name and address of the original creditor, the account number used by that creditor, and the amount owed to that creditor at the time it was transferred.
• Document that there is a valid basis for claiming that I am required to pay the debt to the current creditor. For example, a copy of the written agreement that created my original requirement to pay.

The amount and age of the debt, including:

• A copy of the last billing statement sent to me by the original creditor.
• The amount of the debt when you obtained it, and when that was.
• Itemize any additional interest, adjustments, fees or charges added since the last billing statement from the original creditor. In addition, explain how the added interest, fees or other charges are expressly authorized by the agreement creating the debt or are permitted by law.
• When the creditor claims this debt became due and when it became delinquent.
• Identify the date of the last payment made on this account.

Details about your authority to collect this debt.

• Provide the name on your debt collection license, the date of that license, the state issuing that license, the issuing agency (name, address and phone number) and the license number.

I have asked for this information because I have some questions about your claim that I owe this money.  I am open to communicating with you for this purpose.  In the meantime, please treat this debt as being in dispute and under discussion between us. 

In addition to providing the information requested above, please let me know if you are prepared to accept less than the balance you are claiming is owed. If so, please tell me in writing your offer with the amount you will accept to fully resolve the account.

Thank you for your cooperation. Sincerely,

Your name

What is a dispute letter?

It’s not uncommon for credit reports to contain inaccurate information, and that can hurt your credit score. The easiest way to dispute a credit report error is probably to use the online dispute form for Equifax, TransUnion or Experian.

However, sometimes you might prefer to go directly to the creditor reporting the entry. It can be easier to have only one entity to contact, one set of documentation to provide and one letter to write. In addition, it’s not uncommon for credit bureaus to correct an entry only to have the creditor reinsert the error in the next reporting cycle. Fixing the problem at the source makes sense.

Credit dispute letter sample

Here is a sample credit dispute letter you can use to address an error with your creditor.

Your name
Account number
Your return address

Date
Company Name
Company address for receipt of direct disputes

Re:  Disputing errors on credit report

Dear Company Name

I am writing to request a correction of the following information that appears on my Equifax, Experian, and TransUnion consumer report:

• Account Number or other information to identify account:

Insert account number or other information such as account holder names and past addresses. This is important if you have had multiple accounts with the same company.

• Dates associated with item being disputed:

Insert the date that appears on your report. This helps ensure that the company identifies the correct account and indicates what you’re disputing.  You can still file a dispute if you don’t have this date.

• Explanation of item being disputed:

Insert a detailed explanation of why the information is inaccurate.  Here are some examples of problems a consumer might want to correct. Pick one, if it applies, or explain the problem in your words.

• The report shows I currently owe money to your company that I have already repaid. (Give details about when you paid, and attach a copy of any proof that you have).
• The date of the first delinquency on my report is not accurate.( Give details about delinquency status, including payment history.)
• My student loan shows a period of delinquency when I was actually in an income-driven repayment plan. (Provide documentation, including copies of your billing statements.)
• I’m the victim of identity theft and I don’t recognize one or more of the accounts on my report. (You may wish to include a copy of the FTC identity theft affidavit describing the identity theft.)
• Other (Describe what is wrong with the report. You may include copies of any additional supporting documentation that you have.)

I have attached a copy of my report with the accounts in question circled.  

Thank you for your assistance.

Sincerely,

Your name

What is a goodwill letter?

If you have excellent credit, one late payment can seriously harm your credit score. However, a well-written goodwill letter might get you off the hook and reverse that damage. A goodwill letter is one that you write to a creditor when you have messed up.

There are five elements in a goodwill letter:

• Remind your creditor of what a good customer you are — how long you’ve had your account and that you have an excellent track record with your payments.
• Explain why your payment was delayed that month.
• Apologize for paying late.
• Nicely ask them to please report your payment as on time.
• Promise to never pay late again.

Remember that the employee reading your letter is busy and has heard it all. So keep it short and respectful, avoid long, drawn-out excuses and admit your mistakes. Don’t just copy and paste this one — make it personal, and use the proper title (and if you know it, the name) of the person who will read it.

There is a lot at stake, so make an effort.

Goodwill letter sample

Date
Creditor name

Creditor address

Re: Account number: XXXXXXXXX

Dear Creditor representative (title or name),

Thank you for taking time to read this letter. I’ve enjoyed my relationship with Creditor name since Year account was opened. 

I’m writing because I noticed your company reported a late payment in Date of late payment on my credit reports. I am requesting a goodwill adjustment to remove this late payment from my TransUnion, Experian and Equifax credit reports.

After reviewing my records, I realize that I did indeed miss the payment deadline. Unfortunately, (Explain why you missed the payment.) I take full responsibility for the mistake. I apologize and have made sure it won’t happen again. As you can see from my payment history, I’ve made every payment on time both before and after the late payment.

If you could make this goodwill adjustment, I believe it will significantly help me protect my credit score and save me unnecessary costs in the future.

Thank you for your time and consideration.

Sincerely,

Signature
Printed name
Address

What is a pay-for-delete letter?

A pay-for-delete letter can be a solution if one of your debts goes into collection. It’s a written request to remove a collection account from your credit report in exchange for partial or full payment of the debt.

Most experts recommend that you don’t admit to owing the money. That’s in case your letter doesn’t work and you have to negotiate a different solution or defend yourself in court. Acknowledging that you owe a debt also resets the clock on the statutes of limitations for debt. That means if your debt is so old that it’s uncollectible, or close to being uncollectible, admitting that you owe it makes it brand new again.

Pay-for-delete letter sample

Your name
Your address
Collection agency’s name
Collection agency address

Date

Account Number: XXXXXXXXXXX

Original Creditor: creditor name

Amount as Listed on Credit Report: $XXXX.XX

Dear Creditor Name,

The purpose of this letter is to offer your credit department a one-time opportunity to settle the alleged amount owed. I do not acknowledge any liability for this debt in any form and I retain my right to request a full and complete debt validation from your company. 

I am willing to pay $XXX.XX of this account if you agree to the following: 

• Your company will delete all references to this account from my credit profile at the three major credit reporting agencies.
• Your company will accept this payment to satisfy the debt in full.
• You will make no mention of this agreement to outside third parties.

If the above-mentioned items are met, I am willing to make payment on this debt. 

I require your written agreement to these terms on company letterhead and signed by a representative who is authorized to enter into such agreements.

I look forward to your response.

You can contact me through any of the following methods.

Your E-Mail Address

Your Phone Number

Sincerely,

Your Name

Do pay-for-delete letters work?

Pay-for-delete letters don’t always work because collection agencies sign agreements with credit bureaus saying that they won’t remove collection accounts simply because they have been paid. So many have a policy of not agreeing to pay-for-delete schemes. But others do because they want to get paid.

That said, you may not need a pay-for-delete letter to wipe away the effect of a collection on your credit score. The latest credit scoring models, FICO 9 and 10 and VantageScore 3.0, do not take paid collection accounts into consideration when determining your credit score. However, you might want to use a letter if you plan to offer less than the full balance owed.

Sesame Grade and Sesame Ring

Credit plays a significant role in our lives and influences access to credit cards and loans, the terms of those loans, and even the ability to rent an apartment or secure a job. It is one thing to understand this, but how to manage it? Credit monitoring services can be valuable and provide consumers with regular updates on their credit scores and reports.

You can see your credit picture at a glance with Sesame Ring. The unique user interface enables easy and intuitive review of TransUnion data. Credit report information from all three bureaus is available if you choose to upgrade to Premium. In addition to data and information, the app provides a measure of overall credit health with your Sesame Grade, and provides alerts, personalized action plans and AI-driven customer support. As you embark on your journey of credit and financial health improvement, knowledge is your most potent asset. Insights from all three bureaus can help you make sound financial choices, negotiate from a position of strength, and nurture your credit health. Regular reviews enable you to maintain accuracy, detect discrepancies and shape your financial future with confidence. Remember that credit is a tool that, when used wisely, can open doors to financial opportunities.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Money doesn’t solve everything. For some people, it isn’t even enough to keep them out of financial trouble.

A recent survey by Credit Sesame found that many people with above-average incomes have below-average credit scores, so-called cash rich and credit poor. That should be a warning sign for those people, and also a cautionary tale for everyone else.

This article will explore how people can be cash rich and credit poor. It will discuss why that can be a problem, and what consumers can do about it.

What does it mean to be cash rich and credit poor?

To understand how someone can be cash rich and credit poor, it helps to start by making distinctions between income, wealth and credit status:

• Income is the amount of money you have coming in every year. This can come from wages or investment earnings.
• Wealth is the amount of money you’ve accumulated so far. Whether it’s from savings, investment gains or equity in a home, wealth represents the cushion of resources you have to fall back on.
• Credit status is how potential lenders and others look at your reliability when it comes to handling debt. This is based on how you’ve used debt in the past and your current debt load.

To be cash rich means you either have a high income or have accumulated a good amount of wealth – or both.

However, that doesn’t necessarily mean you’d be considered a good credit risk. That’s based on your credit history, which is summed up by your credit score.

What determines your credit score?

Credit scores are based on the following five factors:

1. Payment history. This measures how you’ve used credit in the past. If you’ve consistently and recently made all your debt payments in full and on time, it should help your credit score.
2. Amounts owed. This is based not just on the dollar amount owed, but also what percentage of your available credit is in use. If you’re using a high portion of your credit limits, it can be a sign that you’re overextended and this hurts your credit score.
3. Length of credit history. The longer you’ve had credit accounts and the more history you have of using them, the better established you credit record is.
4. Credit mix. The borrowing and payment terms vary for different types of credit. For example, using a credit card (revolving credit) is very different from having a mortgage Installment credit). Having a mix of both revolving credit and installment loans can help your credit score.
5. New credit. If you’ve recently opened several new credit accounts it can increase the risk that you’ll get in over your head. That can drag down your credit score.

None of these factors involves how much money you make or how much wealth you have. That’s why having a lot of cash doesn’t necessarily go hand-in-hand with good credit.

Do some people with high incomes have bad credit?

How likely is it that someone with a high income would have bad credit?

The Credit Sesame survey compared incomes with credit scores. As you might expect, it found that people with above-average incomes generally have above-average credit scores.

However, the survey also found that this isn’t always the case. Though they were in the minority, a significant portion of above-average earners reported having below-average credit scores.

According to the Bureau of Labor Statistics, the median income in the United States is $45,760. As shown by the graph below, even some portion of Americans earning above that amount had below-average credit scores:

Just over one out of five people making between $50,000 and $75,000 reported having below-average credit scores. Among people earning from $75,000 to $150,000, about one in eight had below-average credit.

As you can see by the third income category, even among people making $150,000 or above there were cases of people with below-average credit scores.

How do high earners get bad credit?

So how does this happen? How can you be making good money and still end up with bad credit?

Here are three ways that can happen:

1. Not using credit. If you haven’t used credit at all or haven’t used it recently, you may not have enough history to have earned a good credit score. You may have a poor credit score, or even be considered credit invisible — someone who has no credit record.
2. Living beyond one’s means. For some people, even a good income is not enough to support the lifestyle they want. So they supplement their income with borrowing. This can’t go on forever though, so eventually they find themselves with bills they can’t pay — and bad credit.
3. Being careless with credit. Using credit responsibly isn’t just a matter of having the money to pay what you owe. You also have to be organized and conscientious enough to make your payments on time. If you don’t keep up with that obligation, no amount of money will save you from having a poor credit score.

Why even high earners need good credit

You might wonder why high earners should they care about their credit scores.

Well, even high earners might not be able to pay for a new car out of their normal cash flow, let alone for a house. In that case, they’d have to apply for a loan.

Also, beyond big-ticket items, the convenience of using a credit card is important. That’s especially true if you travel frequently.

Finally, aside from borrowing, credit scores are often used by employers, landlords and insurance companies to evaluate people. A poor credit score can restrict your opportunities and cost you money.

Tips for improving credit

Here are some of the basic ways you can improve your credit score:

• Use credit moderately and consistently. Don’t shy away from using credit. A good credit score comes from proving over time that you can borrow money and pay it back.
• Limit your credit balances. Don’t carry big balances on your credit cards. Not only is this expensive, but using a high portion of your available credit hurts your credit score.
• Organize your payments. Work out a system to make sure you keep up with your payments. If you use autopay, make sure there is enough money in your bank account to cover the bills when they come due.
• Pick your spots when opening and closing accounts. Too many new accounts can hurt your credit score. But, since older accounts can be a positive, don’t be too quick to close accounts.

Certainly, if you have a high income it should make it easier to develop a good credit score. But it’s no guarantee. You have to work on it or you will remain cash rich and credit poor.

You may also be interested in:

• How Much Do You Know About Credit and Credit Score?
• How Fast Can You Raise Your Credit Score

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Survey methodology

The Credit Sesame Personal Finance and Credit Survey May 2022 was designed and executed by Credit Sesame using the Momentive Inc. survey tool. General population data was collected online May 20-21, 2022. The survey sample comprised 1,222 U.S. residents aged 18 to 99 years balanced for age and gender using U.S. Census data. The sample data is accurate to within +/- 2.888 percentage points using a 95% confidence level.

The post Cash Rich and Credit Poor: It Can Happen appeared first on Credit Sesame.