Your credit score is one of the most important pieces of financial information you have. It’s an accumulative score of your credit history that takes into account how well you’ve managed your credit cards, loans, and other debts. This information is used by lenders to decide whether to give you credit, and if so, at what interest rate.
A good credit score means you’re a low-risk borrower, which could save you hundreds or even thousands of dollars over the life of a loan. A bad score could lead to higher interest rates and make it harder to get approved for a loan.
So it’s important to continually look for ways to improve your credit report.
1. Check Your Credit Score Regularly
Checking your credit report regularly is important for many reasons. For one, it can help you to identify and correct errors that might otherwise negatively impact your credit score. Additionally, monitoring your credit report can help you to catch signs of identity theft or fraud. However, perhaps the most important reason to check your credit report regularly is to ensure that you are getting the best possible mortgage rate. Lenders use credit scores to determine the interest rates they offer borrowers, so a higher score could save you thousands of dollars over the life of your loan. As a result, checking your credit report on a regular basis is essential for anyone who is planning to apply for a mortgage in the near future.
2. Don’t Max Out Your Credit Cards
One of the worst things you can do for your score is to max out your credit cards. This is because credit utilization, which is the amount of credit you’re using compared to your credit limit, is one of the biggest factors in your score. When you max out your credit cards, it shows that you’re relying heavily on credit, which is a red flag to lenders.
Additionally, maxing out your credit cards can lead to high-interest rates and late fees, which can further damage your score. If you’re carrying a balance on your credit cards, make sure to keep it below 30% of your credit limit to avoid damaging your credit score.
3. Pay Your Bills on Time
One of the most important things you can do for your credit score is to pay your bills on time. This includes credit card bills, utilities, rent, and any other type of bill you might have.
Payment history is the biggest factor in your score, so it’s important to make sure you’re always paying on time. You can set up payment reminders through your bank or credit card company, or you can manually set a reminder on your phone or calendar.
Whatever method you choose, just make sure you’re always staying on top of your payments. Doing so will help you maintain a good credit score and keep your finances in good shape.
4. Resist Closing Old Accounts without Understanding the Possible Consequences
Closing old credit accounts can have a significant impact on your credit. This is because credit utilization – or the amount of credit you’re using relative to your credit limit – is one of the main factors that determine your score. When you close an account, you’re effectively reducing your credit limit, which can lead to a higher credit utilization ratio and a lower score.
Additionally, closing an account will remove the positive history associated with that account from your credit report, which can also lead to a drop in your score. So before you close any old credit accounts, be sure to understand the potential consequences.
5. Don’t Apply for Too Many Credit Cards at Once
Applying for multiple credit cards in a short period of time can have a negative impact on your credit score. This is because each time you apply for a credit card, the issuer will do a hard inquiry on your credit.
Too many hard inquiries in a short period of time can signal to lenders that you’re in financial distress, and as a result, you may be less likely to be approved for new credit.
Additionally, multiple credit inquiries can stay on your credit report for up to two years, further damaging your score. If you’re considering applying for multiple credit cards, it’s important to space out your applications so that you don’t inadvertently damage your credit.
Staying on top of your credit is something that you need to be mindful of during your entire adult life, regardless of if you’re planning to make a major purchase or not. It follows you throughout your lifetime.