The Dos and Don’ts to Good Credit
Your credit score is the most important number in your life. It can determine whether or not you will be owning a new home, driving the car of your dreams, or even securing that new job you just had an interview for.
Having a good credit score can lead you to a long enjoyable lifestyle…. But having a bad score can feel like you’re trapped inside a terrible nightmare.
If it’s one thing I’ve learned working in this business, it’s that credit is confusing and always changing. Back in March, the Credit Reporting Agencies made an announcement regarding new ways to report medical debt and disputed accounts. This change will benefit most Americans, especially those plagued by medical debt.
In an industry that’s consistently changing, how can a consumer know how to obtain a positive credit score? The general public is uneducated when it comes to credit and most are even unaware of their own scores. Well, you’re in luck! I’m here to give you the basic steps to good credit:
DO: Secure different trade lines of credit.
The first rule for the steps to good credit is to secure different trade lines. The more types of credit you have, the better your score will be (assuming the accounts are in good standing.) Ten percent of your credit score is determined by the different types of credit used. That doesn’t mean go out and start applying for as many accounts as you can (that will hurt you.) What that means is the credit bureaus like to see variety. A consumer with a mortgage, a few credit cards, student loan, and auto loan on his/her report should have pretty good credit score (again, assuming all accounts are in a good standing.)
DON’T: Close Out Old Credit Cards
“I’ve had this card for years. It’s old, and I just got a new one should I close this out?” The answer is NO! Old credit cards aren’t like old TVs or computers. You shouldn’t close them just because they are old. In fact fifteen percent of your credit score is based upon credit history. Closing old accounts can instantly decrease your credit score. If you have an old account you no longer use, you’re better off waiting for them to become inactive rather than closing them out.
DO: Use Credit Cards Regularly
Not long ago I met a gentleman who told me he only opens up credit cards to boost his credit score. He never uses them, just opens them up and locks them away.
While this may improve the score a little, his score can be substantially increased if he actually used the cards. A recent study from Credit Karma shows an average score of 692 for consumers that hold their cards at a zero balance. The same study shows average scores of 753 for consumers who used 1-10% of their credit limit, and 715 for those who used 11-20%. Which brings me to our next “don’t”…
DON’T: Go Over 20% of the Credit Limit
The bureaus want to see you using your cards, but they don’t want to see you overusing them. This is also a good strategy for your wallet, as the more in debt you go, the more interest you will pay.
It’s easy to start charging away on your credit card and not realize where your utilization lies. Stay on top of your balance. Make sure you budget yourself and keep track of where your account is at. In the same Credit Karma study mentioned above, the average credit score is 563 for consumers with maxed out cards.
DO: Pay More Towards Accounts
Any type of loan will have you make monthly payments. Do your best to pay more than the minimum. While making minimum payments won’t necessarily hurt your credit score, you’ll get a score boost if you pay them off in a timely manner.
Making minimum payments will cause you to pay more interest, which is money you could be saving. If the minimum payment is all you can afford at the moment, then there’s not much else you can do. When you do come into some extra cash, put it towards your debt. The quicker your debt is paid off, the quicker you’ll have some extra dough.
DONT: MAKE LATE PAYMENTS!
The most important Don’t on the list! Making a late payment with drop your credit tremendously and will remain on your report for up to 7 years. All derogatory accounts start with just one late payment so make sure you pay everything on time.
In today’s fast paced world it’s easy to forget when payments are due. It’s always a good idea to setup payments through autopay. Just double check to ensure the payments go through. If you’re not doing autopay, set reminders for yourself to pay. One late payment is all it takes to destroy your credit score.
DO: Monitor Your Credit
Always keep a watchful eye on your credit. Credit monitoring can alert you to any new accounts that will appear on your report. If you see something fraudulent, report it to the bureaus and the FTC immediately. It’s easier to get a recent mistake removed rather than a lingering old mistake.
DONT: Assume Your Credit is Fine
1 in 4 consumers have errors on their credit reports. Most consumers aren’t even aware of what is on their report. Get a credit report and find out what is on it. If you need help reading the report, consult a credit expert like the ones at Better Qualified. They can tell you exactly what is on the report and provide you with the steps toward better credit. They also specialize in removing negative items from credit reports. Don’t just assume your credit is doing great. Make sure you know what is being reported!
If you follow the steps to good credit, your score will increase tremendously. If you need help getting your credit back on track, just ask! We’ll provide you with a free credit analysis, go over your report with you, and determine what actions need to be made to improve your credit. Just fill out the form below: