8 Tips for Getting and Keeping Good Credit
July 2, 2015 | Your Finances
From pop-up ads to robo calls, it seems like everyone wants to give you your credit score these days. But is knowing your credit score really that important?
It sure is. The better your score, the more likely you are to be approved for large-ticket items, such as a car or home mortgage. A better score can also entitle you to a better interest rate, saving your hundreds or even thousands of dollars over the life of your loan.
The formula for calculating your credit score is complex—based on your payment history, account balances, available credit, mix of credit types and requests for new credit—so keep an eye on all of your credit behaviors. Follow these top tips for establishing and maintaining good credit from the Consumer Financial Protection Bureau and major credit agencies:
1. Use the federal credit report website. Federal law allows you to request a free credit report from each of the three nationwide credit reporting companies (Equifax, Experian and TransUnion) each year. Request them all at once, or choose a different one every few months. Visit AnnualCreditReport.com or call 877-322-8228 to order your reports. The free reports do not include your credit score, but you can purchase it after you’ve confirmed that the reports are accurate.
2. Don’t accept credit score offers from unknown sources. Scammers pose as legitimate credit reporting agencies to get your personal information, including birthdate, social security number, and credit card numbers. Legitimate organizations won’t ask for this information by phone or email. Watch for phishing emails that include “urgent” news, typos and grammatical errors, and incomplete names. Don’t click through any links; simply forward the phishing email to the Federal Trade Commission at firstname.lastname@example.org.
3. Pay your bills on time. A busy schedule including travel may cause you to pay your bills late from time to time. Even the occasional late payment can affect your credit score, so make arrangements for electronic billing and automated payments whenever possible.
- Schedule electronic payments as soon as you receive the bill, choosing to pay on the date that best suits your budget.
- Consider automatic payments with your credit card—but only if you pay off your credit card every month. Otherwise, you are paying interest on bills you would ordinarily pay off in full.
4. Don’t carry a large credit card balance. Don’t send the message that you’re living beyond your means. A good rule of thumb is to not exceed 30 percent of your available credit in any given month. So if your available credit is $10,000, don’t charge more than $3,000 per month. Having a few credit cards with a small balance that you pay off monthly will help you build a better credit history.
5. Keep debt under control. Creditors will be looking at your total debt-to-income ratio, so manage your debt carefully. If you have student loans, car loans and a mortgage, don’t extend yourself further.
6. Don’t accept every credit card offer you receive. Retailers love to offer you an extra discount for applying for their credit card. While the savings can be tempting, don’t accept every offer. Every request shows up on your report and can negatively impact your score.
7. Don’t close out accounts you’re not using. Your credit score is based on how much available credit you have and the variety of credit in your history. If you close accounts, you’re reducing the amount of available credit and possibly limiting your credit history. If you are consolidating credit cards because of high debt or a better interest rate, talk to a credit counselor about the best way to do this without impacting your credit score.
8. Watch for signs of identity theft. When you get a credit report, check for signs that someone is using your identity:
- A sudden drop in your credit score
- Incorrect personal information
- Balances that don’t match your records
- Accounts you don’t recognize or didn’t apply for
- Bills for services or items you didn’t purchase
If the account details or balances do not match your records, contact the creditor immediately and put a fraud alert on your credit report. If you confirm that your identity has been stolen, place a security freeze on your credit report, which prevents new accounts from being opened in your name.
Keeping an eye on your credit report takes just a few minutes a few times a year, but it offers benefits that can last a lifetime. Check out your credit report today at AnnualCreditReport.com.