How to Build and Maintain Good Credit
Why care about creditworthiness and good credit? Well, because life is so much easier when you have good credit. Creditworthiness means financial trustworthiness. People with good credit are more likely to have their loan or credit card applications approved with ease. Not to mention, those with good credit also get approved for lower interest rates and better terms in most cases.
Did you know? Apartment rentals, cell phone companies, and insurance companies may not ask for pricy security deposits if you have good credit. Good credit indicates that you take your financial responsibilities seriously.
1. Check your credit report regularly…
Sign up for credit monitoring.
- Credit monitoring services will let you know when suspicious activity relating to your credit occurs, when your report changes for any reason, among many other useful features.
- Some examples of online credit monitoring tools include Credit.com, Credit Karma, and Quizzle.
- If you have a credit card that offers free credit monitoring services, don’t hesitate to take advantage of it. If you’re not sure, ask your lender. Your credit is not negatively impacted by utilizing credit monitoring services.
Get your free credit report.
- Anyone is eligible to request one free credit report per year from the three credit bureaus (Equifax, Transunion, and Experian). It is important to pay close attention when reviewing your credit report. Notice and be aware of which things are positively and negatively impacting your credit.
What can impact my credit score/report?
- Payment history, current debts, debt to income ratio, length of credit history, number of credit applications, and types of current credit can all impact your credit score.
What if my credit report is inaccurate?
- It is common for errors and/or inaccuracies to show up on your credit report. Don’t panic – you can dispute it and have the incorrect information removed. A company very well could have incorrectly or accidentally reported something to the credit bureaus or someone with the same name as you may end up with their information incorrectly displayed on your report. If anything on your report is inaccurate or shouldn’t be on there in the first place, contact the credit bureau(s) to dispute the incorrectly reported information. You may be asked to provide proof.
2. Pay bills on time…
- When bills are paid on-time, such data is not reported to the credit bureaus. When a payment is missed, companies send that information to the credit bureaus and that reported information negatively impacts your credit history and report.
- Set up automatic payments or electronic reminders to pay bills whenever those options are available.
- Pay off collections accounts to have them removed from your credit report.
3. Manage credit properly…
- Apply for credit cards only if necessary.
- Make sure to keep a low balance for any existing credit cards – Credit card balances should be within 30% of the credit limit to maintain good credit.
- Do not “max out” credit lines or cards.
- Credit scores also tap into recent credit activity. Applying for multiple credit accounts over a short period of time may tell lenders that an individual’s economic circumstances have changed.
- Closing unused credit cards or credit lines as a short-term strategy to raise your credit score can actually hurt your credit history and score.
4. Reduce debt…
- Reducing debt can improve your credit score significantly.
- A credit report lists all credit cards, accounts, and their balances. This may raise a red flag for lenders if a borrower has a high debt account balance.
- If making payments on time is difficult at the moment, contact your lender(s) and set up a payment plan.
- An effective way to improve credit is to pay down any “revolving debt” first and as quickly as possible.
5. Keep track of spending…
- Being aware of your credit and debit card usage and being more in-the-know about your accounts and spending habits will help you responsibly manage your finances and possibly improve your credit score.