If you have ever applied for a loan or mortgage, you know one of the first things the lender looks at is your credit score. Although, it is important to maintain a high credit score, it is just as important to have good credit habits. Good credit habits not only include your payment history, but also your savings patterns and employment stability.
The following is a list of credit do’s and don’ts. If you follow these suggestions and incorporate them into your daily credit routine, they will help you maintain a high credit score and avoid credit issues.
• Review Credit Report – Request a free copy of your credit report annually from annualcreditreport.com. Once you have received your credit report, review it for any inaccuracies and then dispute anything you find on your report that is not accurate with all three credit bureaus (Trans Union, Equifax, and Experience).
• Credit Cards – Try to limit the number of credit cards you have open, and make sure the payments are manageable according to your finances. Although, to maintain a high credit score you should have at least one revolving account. You should also try to maximize your credit scores by keeping your balances below 30% of their respective available limits. Avoid closing credit cards that have historically been paid on time. If you close an account that had a good payment history, you will be eliminating it from your credit score calculation.
• Bills and Obligations – Make sure you pay all of your bills on time, this includes: credit cards, rent or mortgage, loans, utilities, and other monthly obligations. Even though, some of these bills are not reported to your credit report by the creditor, they will still impact your overall financial well-being.
• Create a Savings Plan – If your employer offers a 401(k) plan, it is a great tax-free tool to save for the future. It is also a good idea to create a savings plan that you fund per pay period. If you deposit $25 per pay (assuming you are paid semi-monthly), this will equate to $600 annually. If you make savings a routine, it will benefit you greatly in the future.
• Employment Stability – The fastest way to derail your credit history is the threat of unstable income and constant job change. If you cannot count on your paycheck, your ability to make your regular monthly payments will be extremely challenging.
If you are trying to rebuild your credit after bankruptcy or foreclosure or have had very little to no credit in your past, a good way to start building your credit would be as an authorized user on one of your friends or relatives credit cards, or by opening a secure credit card from a local bank. A secure credit card typically requires a deposit of $300 to $500 to open, but is sometimes the only way to start to establish credit. If you have had late payments in the past, but it is not due to your financial ability to pay, you may want to set up automatic payments for your monthly obligations. This will ensure that they are paid on time and in the long run, this arrangement will have a positive impact on your credit scores.