Some time ago, I published a post that directed you to the Fed’s guide to credit and protecting your credit. It was a good place to start regarding understanding your credit and how it is reported!
Credit is not an entitlement. We earn the right to have it! And, if we are careless about our spending habits and run up high balances on accounts, we are going to be less likely to get credit in the future, perhaps when we most need it!
It is especially important with the way things have gone in the banking industry over the past few years, that we be mindful of our credit privilege and to preserve it. While it is true that banks are in the business to lend, they have become particular about who they are lending to! Here a a few things that may help you to keep your credit scores high, some very basic, a one or two most do not know.
Although no one really know the exact formula that the credit bureaus use to determine your credit score, but a few things may help to keep them higher. So most of what I say here has been told to me or I have observed and learned from looking at a multitude of reports!
1- Limit your credit spending to what you can afford to pay off at the end of the month when the bill arrives in the mail
2- Limit the number of accounts or trade lines that you have open.
3- If you are not using an account and have no intention of using it, call the lender and close the account, even if there is still a balance. Trust me here, the lender will allow you to close the account and they will still send you the bill until it is paid!
4- It is my experience that you really only need a few credit accounts to build a good credit history. If you own a home, a mortgage is the best account to build your scores. But, one late payment can bring down your scores by fifty to ninety points. That is correct, one late payment.
5- If you have a car loan and two or three other types of credit, installment or revolving, you have enough to build a strong credit history.
6- Know that having high balances on revolving accounts (credit cards) will be detrimental to your credit scores, even if all payments are made on time! Believe it or not, you are better off having three accounts with balances lower that 50% of your high credit limit than you are if you have one account maxed out and two accounts with”0” balances. Best advice here is read number one again! Keep your balances to a minimum or to what you are able to pay to “0” at the end of the month.
7- You do not need to carry balances on your credit cards from month to month to get them to count as active and to contribute to improving your credit status. Using the card and paying the balance in full when the bill comes will work! And by paying in full before the end of the grace period, you get to use the banks money free for a number of days. What could be better that that!
8- Understand that a payment is not considered late in the eyes of the credit bureaus until it is 30 days or more past due. So, always strive to make sure you get your payment to the lender, allowing enough time to post it. I know many clients that use electronic bill paying services and have their payment for their mortgages made on the 14th of the month. Yes the lender says it is due on the first, but there is no penalty as long as it is received on or before the 15th of the month. Auto bill pay can help you preserve your credit!
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