6 Tips for Achieving and Maintaining Good Credit
Credit is becoming increasingly necessary to achieving life’s milestones. Most people will need to borrow money if they want to go to college or purchase their first home. The higher your credit score, the more likely you are to qualify for these loans and enjoy advantageous terms.
Even if you don’t plan on taking out a loan, good credit can benefit you in other areas of your life. People with high credit may have an easier time finding somewhere to rent and avoid deposits on utilities and cell phone plans.
Maintaining a high score is just as important as building one. Once you’ve put in the work to achieve a great credit score, you don’t want to lose it. Take a look at the tips below to learn how you can keep your credit in good standing.
1. Apply for One Card at a Time
It may be tempting to apply for multiple cards at once, however that can be a red flag. For example, if you want to build credit, applying for a credit builder card can be a great resource. But don’t apply for three different credit builder cards at once.
Although having more available credit can improve your utilization ratio, applying for multiple credit cards at once could hurt you. Each time you request a new card, the potential lender looks into your credit, taking points off your score. If multiple lenders make these “hard inquiries” in a short timespan, you could deal a serious blow to your credit.
Just because you shouldn’t send out multiple card applications at once doesn’t mean you can’t secure more credit. Weighing different card rewards, interest rates, and cash-back bonuses can help you narrow your search to just one or two.
2. Keep Credit Utilization Low
Credit utilization refers to the percentage of credit you’re using of the total you have available. Most financial experts agree that you should try to keep this number under 30%. That’s because utilization makes up 30% of your credit score, and a lower ratio indicates that you’re not overly dependent on credit for everyday spending.
Contrary to what you may think, your utilization rate isn’t what you spend each month. It’s actually the balance reported to credit bureaus by your card issuer. Paying down your balance before it’s reported to credit bureaus can help keep this rate low. However, different issuers send data at different times of the month. So it’s a good idea to chat with your issuer if you want to know when yours is reported.
3. Don’t Close Old Credit Cards
If you’ve got an old credit card that you’re not using, you may be tempted to close the account. However, getting rid of a card could harm your credit score. When you close a credit card, your available credit goes down, increasing utilization. The average age of your accounts will also decrease, which has a small negative impact on your credit score.
However, there are a few instances when experts say the temporary drop in your score is worth closing an account. When a card has a high interest rate or an expensive annual fee, it may not be worth keeping around. If either is the case for one of your cards, it may benefit your financial health long-term to close the account.
4. Pay Your Credit Card Off Each Month
Some people think that carrying over a small balance on your credit card month to month can improve your credit score. Don’t believe this myth. Not only will this cost you money in interest, but it does nothing to raise your score. It’s smarter to only make purchases with your card that you can afford to pay off in full.
If you struggle to pay your entire balance each month, look for small expenses you can cut to make this more manageable. A great place to start is subscriptions.
5. Have Different Types of Credit
One of the five factors that determine your credit score is credit mix. While this factor only accounts for 10% of the equation, it’s worth keeping in mind if you’re interested in optimizing your score. Credit mix refers to the different types of credit you have experience with. For example, if you use a credit card and have a student loan, you have both revolving and installment credit.
Making a large purchase with a loan instead of a credit card is one way you can enhance your credit mix. However, if you can’t afford to make an additional payment each month, avoid this technique.
6. Keep Tabs on Your Credit Report
You keep your credit utilization low, you’ve got a decently long credit history, and you pay your bills on time. So why bother checking your credit report? Sometimes, your credit report contains errors that can negatively impact your score. If you don’t check your report yearly, you could miss these errors and see your credit tank.
If you notice an error on your report, don’t freak out. There are steps you can take to fix the problem. You’ll want to start by disputing the error with the credit reporting company. When you mail your dispute to the company, include supporting documents to verify your claim. This will help the investigation process go quicker.
Having good credit makes it easier to do the things you want in life. It can take time to build your score, and it takes just as much effort to maintain it. Use the tips above to help keep your credit score high.
