Over the past few months, we have covered a few credit-related topics, such as “the basics,” “pitfalls,” and “perks” of having credit. Now is a great time to pull it all together and end with a look at the only thing that really matters, how to build good credit.
These are simple strategies to follow for strong credit. Of course, there are many other factors, but keeping it simple is sometimes the best route to follow. Hopefully, these articles will make you wiser and more aware of the importance of credit and the role it plays in each of our lives.
Pay Your Bills on Time
This may seem obvious, but late payments are the most common reasons for negative information that appears on peoples’ credit reports and are often responsible for significant drops in credit scores. When it comes to loans and credit cards, it’s vital that you always make at least the minimum payments each month. Making late payments or defaulting on any loan will also have an impact on your credit and can stay around to haunt you for up to seven years.
The easiest and most straightforward thing you can do to protect your credit report and credit score is simply to pay your bills on time. It’s that easy!
Keep Credit Card Balances Low
Your payment history on those credit card accounts also impacts your score, as does your credit card balances. Having a balance that represents 35 percent or more of your overall available credit limit on each card will hurt you. If you have a $1,000 credit limit on a credit card, then you want to maintain a balance of less than $350. Spreading your credit card debt among several cards might help your credit score.
Establish Good History and Keep Unused Accounts
One of the factors considered when calculating your credit score is the length of time you’ve had the credit established with each creditor. You’re rewarded for having a positive, long-term history with each creditor. In other words, the longer your positive credit history, the better.
If you have a handful of credit cards you never use, instead of closing the accounts, put the credit cards in a safe place and forget about them. Having at most five or six credit card accounts open can be beneficial.
Only Apply for Credit When It’s Really Needed
Only apply for new credit if you absolutely need it. Applying for a retail store card you’re going to use once or twice, when you could just as easily use an existing credit card, might not be the best idea. Applying for and obtaining multiple new credit cards within several-month’s time will be detrimental to your credit score.
Correct Inaccuracies in Your Report
Every time you apply for a credit card or any type of loan, a potential creditor will make an inquiry with one or more of the credit reporting agencies. If you have multiple inquiries in a short period of time, this can dramatically reduce your credit score.
Keep in mind, when shopping for a mortgage or car loan, it’s allowed to have multiple inquiries for the same purpose within a 30- to 45-day period, without those multiple inquiries hurting your credit score. In this situation, the multiple inquiries will be counted as one single inquiry.
Watch Those Inquiries
One of the fastest and easiest ways to quickly give your credit score a boost is to carefully review all three of your credit reports and correct any erroneous or outdated information that’s listed. If you spot incorrect information, you can initiate a dispute and potentially have it corrected or removed within 10 to 30 days.