Maintaining a good credit score


Having a good credit history and credit score is one of the largest factors in determining overall financial health.  Without a good credit score, you will have a difficult time being approved for a mortgage, auto loan, credit card, personal loan, or another form of credit.  If you have bad credit and are approved for a loan, you most likely will be charged a higher interest rate and have to pay more fees than a person with good credit.  This could end up costing you thousands of extra dollars over the course of your lifetime.

Building a good credit score takes a lot of time, and ruining your credit score can be accomplished immediately.  Any negative mark that appears on your credit report will remain for a period of 7 to 10 years.  Because of this, properly maintaining your credit is very important.  Luckily, there are several simple steps that you can take to maintain your credit.

The first step to take to maintain your credit is to keep constant track of your credit.  The best way to do this is to check your credit report several times per year.  Each of the three credit bureaus is required to provide you with a free copy of your credit report once per year.  This means that you can receive one free copy of your credit report every four months.  When you receive your credit report, you need to fully analyze the report for accuracy.  If there is incorrect information on your report, you need to contact the appropriate creditor immediately.  Incorrect information could just be a mistake, but it could also be on your report because of fraud.  By reviewing your credit report, you will also get a better understanding of what derogatory information is pulling down your score.

Another step that you can take to maintain your credit is to pay all of your bills on time.  Your history of making timely credit payments is one of the largest factors that go into determining your credit score.  While a payment is considered “late” if it is made 30 or more days late, it is best to make your payments as early in the month as possible.  While paying your bills early in the month will save you money on interest, it will also protect you in the event that your payment gets lost in the mail.  Through the use of online bill pay and other financial software, keeping track of your bill payments should be quite simple.

The third step that you can take to maintain your credit is to avoid relying on your credit cards.  Along with historical timeliness of payments, your credit card usage rate is one of the largest determinants of your credit score.  Your credit card usage rate is the percentage of revolving credit that you are presently using.  For example, if you have $1,000 of credit card debt and $5,000 of available credit, your credit usage rate would be 20%.  If your credit card usage rate exceeds 30%, your credit score will begin to suffer.  To ensure that you do not harm your credit, you should do your best to not rely on credit cards at all.  If you do use your credit card, you should do your best to pay off your entire balance at the end of each month.  If you presently have a high credit card usage rate, you can improve your credit score instantly by paying it down.

The fourth step that you can take to maintain your credit is to minimize the amount of credit accounts you have open.  Ideally, you should have no more than 2 or 3 open lines of revolving credit.  Furthermore, your credit score also factors in the length of the relationship you have with your creditors.  Because of this, it is best to avoid opening and closing credit accounts frequently.  While opening a new credit card often comes with cash back or other perks, in the long run it will hurt your credit and cost you more money than you will receive.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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