There are many things a consumer can do to help them maintain a good credit score. Here are five simple steps to keeping your credit in tip-top shape:
1. Know what a credit score entails.
Knowing how a credit score is calculated is key. Your credit score is calculated based on five different things: your loan and credit card payment history; your level of debt; your credit age, or how long you’ve had credit; the types of credit you have, which should be a mix of credit cards and loans; and recent credit. Knowing where you stand with regards to all five of those areas will help you understand your credit situation.
2. Pay your bills on time.
Another way to maintain a good credit score is to pay your bills in a timely manner. Obviously you want to keep up with when your payments are due, and then either pay your bills on their due dates or even a bit early if you can so you don’t end up incurring any finance charges. Doing this will also help you avoid late payment penalties, which can end up adversely impacting your credit score, and will show creditors that you are responsible.
3. Know how to manage your debt.
Being able to maintain a low amount of debt will also help you keep your credit in good standing. If you keep the balance on your credit cards low, this will help boost your credit score and will show creditors that you know how to manage your credit. Besides doing that, limiting the amount of loans you have is a wise choice. Some creditors see consumers who have a multitude of credit cards and loans as high risk, and so if you have too much credit they may hold that against you if you are looking to extend your credit even further.
4. Don’t close old credit cards.
You know that store credit card you opened to get the extra percentage off your retail purchases? Experts say that you should not close that card even if you don’t use it anymore. Once you close a credit card, credit bureaus will no longer receive reporting information related to that card. They will then consider it an inactive card, and that can affect negatively affect your credit rating.
5. Limit your credit applications.
Every time you apply for a new loan or credit card, your credit score goes down slightly. Since credit inquiries make up 10 percent of your score, applying for multiple credit lines within a short span can lower your score dramatically. For instance, if you started with a credit score of 700 and then applied for several loans quickly, that score could potentially go down 10 percent, or 70 points. You would then be left with a score of 630, which would move you from having a good score to having merely an average one. With this in mind, it is wise to be somewhat conservative in terms of how often you apply for new credit lines.
Remember to Regularly Monitor Your Credit
It’s important for you to keep tabs on your credit information. Just because you’re making payments on time and not applying for new credit doesn’t mean that errors can’t turn up on your credit report from time to time. By law, you’re entitled to a free credit report once a year, so take advantage of that.