How To Keep A Good Credit Score
The most important thing to good credit health is maintaining your credit profile by applying smart credit activities. Applying the good credit habits described below will guide you on how to keep a good credit score.
The most important piece of how to keep a good credit score is to maintain a positive payment history. Your payment history makes up 35% of the calculation. This data allows creditors to see exactly how you’ve performed in the past with on-time payments. Paying on time may sound like a simple step. However, managing payments can be a challenge when creditors come calling.
Good payment management starts with a detailed list of creditors, how much you owe, and the amounts due. You can utilize several online tools, an Excel spreadsheet, or a handwritten financial to-do list to organize these details.
Set payment reminders a few days before each due date. Most lenders allow you to establish automated payments, especially if you’re not disciplined enough with payment reminders. One or a combination of these methods will help to keep you paying your bills on time.
Keep Your Credit Relationships Alive
The length of your credit history also plays a big part in how to keep a good credit score. The longer you can show responsible use of credit, the better off you’ll be. While it may be tempting to close a low usage account, keeping it open helps your score. It shows that you’re able to maintain good credit standing with a single creditor for a long period of time.
Don’t feel obligated to stay with a creditor just because you’ve done so in the past. If a credit account charges fees and you’re no longer using the account, it may be worth closing it. Be on the lookout for better deals with new creditors that could be of more value. However, keep a close eye on your total credit history before making any new credit decisions.
Be Proactive when Communicating with Lenders
When running into financial hard times, be proactive in communicating the situation with your lender. Sometimes a loss of employment or a medical emergency have a negative impact on an otherwise spotless financial record. When money difficulties arrive, it is important to contact your creditors before you miss a payment.
Creditors are often willing to make monthly payment concessions, or they may reduce your interest for a period of time. Regardless, lenders are far more likely to work with you when a financial issue arises before you become late.
Payoff Substantial Purchases before They’re Worthless
Another way on how to keep a good credit score, is to be smart about what you purchase. Large purchases, like a home or a car, have relatively low interest rates. However, given the time it takes to repay these type of loans, you should consider your total cost of borrowing. A general rule of thumb is to avoid getting upside down on a loan. Therefore, you never want to owe more than the asset backing the loan is worth.
Home values are more likely to appreciate in value over time. However, as you accumulate equity limit borrowing through home equity loans or lines of credit. In contrast, if you buy a car and fully finance it, you may be underwater almost immediately on your loan. That’s because automobiles depreciate in value the moment you drive them off the lot. If you wreck your vehicle, you may be responsible for the difference between the value and what you owe. When events like this occur, your credit score could suffer if not financially prepared.
The best thing you can do to maintain a healthy credit profile is to review your credit regularly. You have free access to your credit report from each of the three major credit reporting agencies once per year. In addition, many financial institutions and credit card issuers now provide no-cost access to your credit score. They will also provide alerts to keep you informed of credit report changes. Additionally, any time you take on new credit, you have the right to ask for a copy of the report.
Maintaining a good credit profile and score requires staying educated and being well informed. Credit cards, personal loans, mortgages, and even bank accounts all come with a credit agreement. It is your responsibility to read and understand prior to accepting any new accounts. The credit agreement, reflects rate, monthly payment due, and any additional supplemental terms. If you are not comfortable with the terms, find another account or have a paid professional review it for you.
Create a Budget
Finally, maintaining your credit and how to keep a good credit score comes down to being financially responsible. Establishing a budget is an important step, as your credit score is based on repayment history. Several online budget applications like Quicken exist that make the process less difficult from a data-entry perspective. Also, you can use note paper or other computer-based methods to track your spending.
A budget allows you to easily see what money is coming in versus what you’re spending each month. That information provides the basis for budget adjustments as needed. From time to time, you should always revisit your budget. Especially, with a pay raise or taking on a new debt to ensure that you can maintain your financial obligations.
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