Maintaining a good credit score can be tricky. On the one hand, credit is there to provide you the opportunity to buy the things you need to improve the quality of life for yourself and your family, and you shouldn’t feel afraid to use it if you need it. On the other hand, being reckless with your accounts, and buying things that aren’t necessary or outside of your means, can lead to a bad score and reduced options for you.
Many people in tough situations regarding their credit didn’t get there because they were always irresponsible; often, it was because they just didn’t know how their actions would affect their credit. This guide will provide you will some things that you can do to capitalize on to improve or maintain a good credit score, and some pitfalls to avoid.
While there are many options to choose from to improve your credit, and though not all will work for your own unique situation, most are simple and easy to implement methods to improve your standing with creditors and lenders, so you can get the money you need, when you need it.
- Live Well Within Your Means – Since your credit score is heavily impacted by how much debt you’ve accumulated, versus how much you’re earning, maintaining a Debt to Income ratio, or DTI, of 35% or less will go a long way in helping you maintain a healthy score. It will also help to ensure that you don’t automatically have to rely on your credit card to afford your bills.
- Maintain Different Lines of Credit – Having different types and lines of credit will increase your total available credit and help diversify your credit portfolio. Start simply by getting a credit card from a bank and your preferred grocery store. This will strengthen your credit history, and demonstrate that you can manage different credit types, limits, and minimums.
- Pay Your Bills on Time – Meeting your monthly payments on time is huge in helping to improve or maintain your credit score. While you should always strive to pay the full account balance on your credit cards, at a minimum, don’t be late with your minimum payments, or worse, avoid missing a payment altogether!
- Check Your Credit Score at Least Once a Year – In order to make sure your score is where you want and need it to be, you need to check your credit score at least once a year. If you’re planning on applying for a loan or anything else, check your score at least a few months beforehand. That way, if your score isn’t where it needs to be, you have some time to improve it.
- Find and Maintain Stable Employment – Though you obviously will need a job, whether you want to have access to a lot of credit or very little, your employment history also plays a role in your credit score. You don’t need a job that pays six figures a year, but if you maintain the same job for years or, even better, get promoted into a higher paying position, it will help to improve your trust with creditors, and by extension, your score.
There are many pitfalls that can lead to your credit score taking severe damage, and not all of them will be readily apparent in the way they affect your score. As you work to better understand and improve your credit, make sure you avoid doing any of the following.
- Max Out Your Credit Cards – Creditors and lenders want to see that you’re being responsible with the credit they’ve extended to you. Maxing out your limits demonstrates that you’re relying on credit, more than your income, to afford what you buy. Keep your credit purchases to around 35% of your limit or less per line of credit, and limit yourself as much as possible to purchases you could easily pay with cash-in-pocket instead.
- Apply for Multiple Credit Cards at Once – Earlier we mentioned that it’s important to diversify your credit, and that’s true. However, trying to apply for multiple credit cards all at once will have an immediate, negative impact on your score. Every application for a new line of credit requires a credit check by the creditor or lender, and each time an inquiry is made on your credit score, it can drop your score anywhere from two to 20 points. Instead, give yourself anywhere from four to six months, at the minimum, between applying for new cards or loans.
- Automatically Close a Credit Card Just Because You Aren’t Using It – As contradictory as it sounds, keeping a credit card open, even if you’re not using it, can be healthy for your overall credit score. Open accounts help diversify your credit portfolio, provide a longer credit history, and increase your total available credit. If you have to cancel a card, close a retail account, as opposed to a bank or gas card.
- Use Credit Unnecessarily – Buying a new car you can’t afford, or a house that’s more than you need, all increase your debt and will raise your DTI, which will impact your overall credit rating. As we said before, live comfortably, but well within your means, and look at ways to reduce your debt.
- Get Discouraged Because You Have A Low Score – There are many reasons why you may have a low credit score, and not all of them may be your fault. If you’re a fresh college graduate who just got their first credit card, it’s very unlikely you’ll be able to compete with a Baby Boomer who’s paid off their mortgage and several cars over the course of their life. Fixing your credit score takes time, especially if you don’t have an extensive credit history. And while there may be doors you find closed because of your current score, there are options to get you money if you need it.
It Starts With You
Along with your social security number, your credit score is probably the most important number you need to know at any given time, and it will have a direct impact in your life far more frequently than your SSN. Knowing your credit score, and developing a plan to improve your score if its bad, or maintain it if it’s good, should be a priority in your life, regardless of your current circumstances.
If you abide by the do’s and don’ts we’ve discussed in this article, you’ll find that you’ll have a much better grasp of your credit score and what you can do to control it, rather than the other way around. If you do your homework and take an active role in influencing your score, you’ll find that your score will improve dramatically, and you’ll be able to access the credit you need to improve your life the way you want.