Learning how to boost your credit profile is never a bad thing, as many of us try to stretch our dollars by using credit. Most consumers that have excellent credit habits have established solid financial routines that we can all learn from.
Here is a look at the best habits of consumers with excellent credit. See if you can boost your own scores by making these your own excellent credit habits.
Habit #1 – Payments made on time
On-time payments are one of the most important habits driving a credit score and those with excellent credit do not miss their payments. Those who have many types of credit and those with only a few lines of credit can benefit from making payments on time. Keep paying on time and you will be able to build up a great credit score. However, missing a payment or two will drastically lower your score.
Not all of your monthly payments are listed on your credit report, so they don’t affect your credit as long as you’re paying on time. But any bill can potentially wind up on your credit report if you become delinquent and the account is sent to a collection agency. Keep any negative accounts off your credit report to build a good credit score. A serious delinquency like a debt collection can be hard to overcome.
If you’re only charging what you can afford to pay, you won’t have a problem paying your full balance every month. Paying off your balance each month shows that you’re capable of paying bills, something creditors and lenders want to see. Since a large part of your credit score includes timeliness of your payments, paying your balances on time improves your credit.
Habit #2 – Low debt overall
Although many people think that those with excellent credit have a lot of debt, those with scores of over 800 usually have a small total amount of debt. Having more debt does not mean you will have good credit. However, only those with good credit that have the ability to accrue more debt. And you must be proactive about your debts and credit.
Check your credit report and FICO score regularly. You can get a free credit report once a year to check your Equifax, TransUnion, and Experian credit reports. Instead of ordering them all at once, request a report from a different credit bureau every four months. This way, you can monitor your report throughout the year. When you get your report, look for errors and signs of identity theft.
One reason you want to stay on top of your credit life is so you always know where you stand with credit card balances. The goal is to pay off the balance every month. There’s really no middle ground here. You have to have the self-discipline to stop spending when you reach your budgeted limit.
Habit #3 – Low debt utilization
Low total debt utilization is another habit of those with excellent credit. Studies show that those with excellent credit usually only use about 5 percent of their total credit limits. Those with low scores are often using close to 100 percent or even over that amount. Handling credit responsibly helps to keep your total debt utilization low, which keeps your credit score looking good.
When you get into the habit of charging only what you can afford, it lets future lenders and creditors know that you are a responsible borrower. You’ll find it easier to borrow money and get new credit when you show that you know how to only borrow what you can pay back.
Maxing out your credit cards – or even coming close – is irresponsible, particularly if you don’t plan to pay the whole balance off within the month. Lenders know that borrowers who max out their cards often have difficulty repaying what they’ve borrowed.
The same thing goes for loans. Only take out as much loan as you can afford to repay, regardless of what the lender says you qualify for. Before you shop for a loan, review your budget to see what monthly payment you can afford. Make sure your loan payment doesn’t exceed the amount you’ve come up with.
Habit #4 – Maintained multiple credit lines
Credit cards allow consumers to easily build up their credit. To build good credit, you do not have to constantly carry a balance on your card. You can avoid paying interest by using your card each month and then paying off the entire balance. This helps you avoid high interest charges while building a good credit score. Consumers do not have to pay interest to use credit cards to build a pristine credit score.
Having a credit card balance isn’t necessarily bad as long as you do it the right way. Pay more than the minimum each month. Avoid making late credit card payments and continue to keep your balance at a reasonable level (below 30 percent of the credit limit). If you follow these principles, carrying a balance won’t hurt your credit.
Habit #5 – Old accounts kept open
Most consumers with excellent credit keep their old accounts open. The more open accounts you have, the better your credit will be. Closing out old accounts can be damaging to your credit score, since it lowers the amount of available credit. You do not have to carry a lot of debt on an old account. Just keep it open and consider using it occasionally and then paying it off right away.
Your oldest accounts help increase your credit age and build good credit. Closing the account won’t remove it from your credit report immediately. But, after several years, the credit bureaus will eventually drop old accounts from your credit report.
Many people have the misconception that those with excellent credit scores actually have more debt. This is not the case, although it is easy to think that a great credit score requires a lot of debt. While those with high credit scores could accumulate a lot of debt, it’s more often those with lower scores that accumulate debt.
You too can be a member of the low debt club by practicing these excellent credit habits.