There are a number of habits you can adopt to maintain the good credit score you’ve worked so hard to build, and one main reason why you should adopt them: money.
A good credit score typically means lower interest rates, and that means more cash in your bank account. A good credit score will also make it easier for you to be approved for credit in the first place.
Here are my top tips for keeping up your credit score.
Don’t close old credit card accounts
There are a few reasons why keeping credit cards open can benefit your credit score, and one is the length of your credit history, which accounts for 10% of your score.
This is especially important for older cards, because they give your credit report a longer record.
Consolidate credit card balances
Having a number of small balances spread out over several different cards may seem smart, but this approach can actually backfire if you overuse it.
Instead, John Ulzheimer of Credit Sesame says you’re better off paying these amounts down. “A good way to improve your credit score is to eliminate nuisance balances,” he says. This is because having multiple cards with balances can lower your score rather than boost it.
If you’re looking to pay off credit card debt quickly, consider a balance transfer card to consolidate all your monthly payments onto one card.
Pay every bill on-time, every time
Your payment history accounts for 35% of your credit score. If you have trouble keeping your bills in order and staying organized with payments, set up electronic billing and payment reminders to stay on top of your bills.
If you aren’t good at keeping track of what’s due when, don’t worry, there’s an app for that.
If you’re terrible with being on time, you can set up automatic payment plans through your bank or with your credit card to ensure that bills are paid for you, on time, every month.
While you’re paying credit card bills and rent on time, make sure you also get credit for paying for your utilities and phone. You can sign up for Experian Boost®, link your bank account, and get credit for paying those bills on time, too. The service is free and includes a free credit report and myFICO score.
Keep credit card balances down
If you have one credit card with a $1,000 limit and have a $500 balance, your credit utilization ratio is 50%. Aim for 30% or lower.
The people with the best credit scores only use about 7% of their available credit.
Routinely check your credit report for errors
Errors on your credit report are more common than you might think. Luckily, you can keep an eye on them by taking advantage of the free yearly credit reports you’re entitled to from TransUnion, Experian, and Equifax.
When you get the reports, go over them carefully to look for errors, and get on the horn right away to dispute any errors you find.
Minimize new credit applications
New credit applications account for 10% of your score. Each time you apply for credit that prompts a hard inquiry into your report, your score will take a hit.
Unless it’s absolutely necessary, don’t apply for new credit cards or loans if you want to keep your score up.
Pay credit card balances in full, when possible
There are at least two reasons why you should never just pay the minimum on your cards, and one is because this is a terrible way to pay off debts! Paying just the minimum means even small debts could be stretched out over years, and this means exorbitant interest fees.
However, if the minimum is all you can manage, make sure you pay at least that every month, otherwise you’ll have late or missed payments on your report for seven years.
If you’re having trouble paying, contact your creditor
If anything should ever happen and you face financial troubles that could affect your ability to pay your bills, then call your creditors right away. You’ll often be able to arrange alternative payment solutions, negotiate a lower interest rate, or otherwise mitigate the situation.
Don’t exceed your credit limit
Keep the 20/10 rule in mind. Don’t let your credit card debt exceed more than 20% of your total yearly income after taxes. And each month, don’t have more than 10% of your monthly take-home pay in credit card payments.
Make a plan to pay down debt over time
If you currently have debt of any kind, taking steps to eliminate it will gradually improve your credit score. Make a budget and start paying down your high-interest cards first while maintaining minimum payments on all the other debts.
Shop credit applications within a two-week period
To avoid having inquiries impact your score when you apply for a new loan, finish your rate shopping within two weeks. Credit bureaus might treat multiple inquiries made within a short period of time as a single hard check, rather than multiple hard checks.
Consider a credit monitoring service
Credit monitoring services watch your credit daily for unexpected changes. On top of alerting you to dips or increases in your score, it can also serve as an early warning sign of identity fraud.
Use a credit boosting service
There are some innovative ways of boosting your credit score, above and beyond the ordinary “pay on time” methods. Experian Boost®, mentioned above, is one tool that’s worth checking out.
Summary
There are plenty of tips, tricks, and healthy habits you can use to maintain and even improve your credit score. Some of the best things you can do include not overspending and paying bills on time.
On top of that, you might also avoid applying for new credit, keep an eye on your reports for errors, and take steps to eliminate debt and lower your credit utilization.