Good credit is critical. Whether it is buying a home, a new car, applying for a credit card or taking out student or personal loans, a good credit score can save you thousands of dollars in interest payments. Building good credit is a challenge for many. Once you reach the promised land, however, you want to stay there. So here are six ways to project your credit:
Pay Bills On-Time – Did you know that 35% of your credit score is your payment history? Consistently making late payments on your credit cards and other bills such as car payments, mortgage payments, etc. will hurt your credit score. Late payments have the potential to drop your score a full 100 points which could mean the difference of qualifying for a loan or not and paying a higher interest rate if and when you do get approved. This is why paying bills on time will surely help preserve your good credit score.
Maintain a Low Credit Balance in Comparison to Your Overall Credit Limit i.e., Credit Utilization – The Fair Isaac Corporation’s (the company that developed FICO scores) credit scoring system says that having a low credit balance compared to the amount of credit you are authorized to use could make you a good credit risk. For example, if you had $50,000 in available credit and only used $5,000, you have only used 10% of your available credit. According to Fair Isaac, your balance should never be more than 30% of the credit limit on any one card. Therefore, if your credit is already strong remember to maintain a good proportion of used credit to available credit. The higher this percentage creeps up, the more negatively one’s score will be affected.
Continue to Use Your Credit Cards – Now that your credit is strong does not mean you should pay all your outstanding balances off and close your accounts. Creditors want to see a verifiable credit history. Continuing to keep your accounts active and in good standing by paying your balances will show your financial reliability. Additionally, fight the urge to transfer your balances to no-interest rate cards as jumping from card to card could also harm your credit.
Be Very Wary about Co-Signing a Loan – Perhaps the most dangerous thing one can do to put their good credit at risk is co-signing for loans. Often times we are lured into helping a friend or family member, yet realize such acts of kindness can have damaging effects on one’s credit score. Not only are you adding debt to your credit report, you must recognize that the person for whom you are co-signing was not able to get the loan without you. Red Flag! Further, if you do agree to co-sign and he/she is late making payments or skip payments altogether, your credit will be adversely impacted. Industry experts advise that unless you are co-signing for a child who is actually living with you and/or for whom you can verify that payments have been made timely, avoid co-signing a loan altogether.
Check Your Credit Report – Another way to ensure your credit remains strong is to check your credit report at least annually. All Americans are entitled to one free credit report from each of the three major credit reporting agencies annually. When checking the report, if you see anything that isn’t supposed to be there, act immediately! Being proactive about ensuring the credit reporting agencies are accurately reporting your credit history is extremely important.
Prevent Identity Theft/Fraud – Although creditors have become very good about working with identity theft victims, it is best not to put yourself in a vulnerable situation in which you can become victim to such a violation. If someone gets a hold of your identity or has access to your credit, it can wreak havoc on your credit score. Accordingly, it is advisable to be careful with your credit, debit, and ATM cards, as well as your account and personal identification numbers (PIN). Make sure you know what cards you have. That way, if the cards are lost or stolen, you can notify the companies quickly. If notification is received before the cards are used, you have no legal responsibility for the charges made. Be extremely careful about giving out your name or card numbers either over the phone or Internet. Be vigilant about protecting your information because if it is obtained by thieves there is no telling the damage that can be done. You may also want to consider signing up for an identity theft protection service.
Establishing good credit is not an easy feat. The difficulty people have accessing credit and getting approval for loans will only become more stringent with new regulations and increased scrutiny from creditors. Take some time to ensure your good credit score is not harmed by practicing the above easy steps.
Published or updated February 16, 2013.