Helpful Tips and Tricks to Achieving and Maintaining Good Credit
No matter what you are buying, having a good credit score is extremely helpful. Excellent credit history is an indication of potential lenders that you repay the loans on time and in full. This gives you an edge over others for securing better rates on mortgages, car loans, or other financial products. Now, there are plenty of ways to maintain excellent credit scores.
Understand What Goes Into A Good Credit Score
For maintaining a good credit score, it is imperative to understand what exactly goes into your credit score. Five key pieces of information are used while calculating the scores – level of debt, payment history, a mix of credit, credit age, and recent credit. However, some things like utility payments and checking account overdrafts will not either hurt or help your credit scores.
Treat All Debts Equally
Remember that your credit score considers both revolving debt and installment or tradeline debts. Irrespective of the interest rates on your line of credit, give equal priority to all the loans. Having a balance on your credit cards constantly will affect your credit scores. This lowers your chances of loan approvals and poses problems for opening other credit card accounts.
Keep Credit Card Balances Low
Having a high credit card balance with reference to the credit limit is sure to worsen your credit scores. It is recommended to have the combined credit card balances within 30 percent of your combined credit limits. Charging over 30 percent can be risky even if you plan to clear the balance upon the arrival of your billing statement. Typically, your balance is reported by the card issuers when the statement is closed. So, this number is what is reflected in your credit report. Monitor your account regularly and pay enough to have a balance under 30 percent. Also, remember to do this before the closure of a billing month.
Do Not Close Old Accounts
Keeping open your old cards will benefit you by maintaining a long credit history. This is important because it accounts for 10 percent of your credit score. When your credit card is closed, the credit bureaus no longer receive updates from the credit card issuer.
Also, the credit scoring formula gives less priority to inactive accounts. As such, the credit bureau is likely to remove the closed account’s history from your credit report. This shortening of credit history will cut down the average credit age and cause the credit scores to drop.
Credit card closure will also affect your available credit. For instance, if your combined credit limit is $10,000 from three credit cards, closing one with a $3,000 limit will reduce your credit limit to $7,000. Now, since it is advised to keep the credit card balances under 30 percent of the available credit, this closure will reduce the threshold by $900.
Decrease Balances by Consolidating Cards
You may think it is profitable to spread out the balances between several different cards, but this approach may backfire upon overuse. Instead, consider consolidating balances. This is because your credit scores can be lowered by having balances on multiple cards.
A good credit score not only helps you get loans faster but will also save you precious money. Responsible and wise credit usage is recommended for maintaining a good score.