7 Habits to Improve Your Credit Score
Whether you like it or not, your credit score is something that will affect you your whole life. If your credit score is good, then you just need to focus on not ruining it. If it's not good, you could be in for some serious work. Unfortunately, raising your credit rating from the depths of disgrace is a process similar to beating the bulge – it could take some time and a lot of effort.
If it's not too late to save your credit score from falling below that red mark, put out all the stops to obtain a better grade. And don't worry; you are not alone on this problem as millions of Americans suffer from having less-than-stellar scores on their credit reports. It's how you deal with it that matters most. Remember that the longer you put off working to improve your credit score, the more difficult it will be to accomplish.
Here are 7 of the most important don'ts of credit that you should avoid doing from now on:
1. Don't put off paying the bills.
Whether it's for the rental, your car loan, your credit card bill, or any other critical bills that could make an impact on your credit rating, be sure that you mail the check on time. Better yet, sign up for online bill pay to make it more convenient for you. Some banks may let you get away with late payments a couple of times, but don't make it a regular thing. About one-third or 35% of your credit score is riding on your payment history.
2. Don't max out your credit card.
Sure, the bank may have deemed you worthy of a $10,000-credit limit. But do you have to spend it all? Remember that any credit you can avail of from this piece of plastic is still a loan that needs to be paid, not a free ticket to unnecessary spending. Your debt-to-available-credit ratio accounts for a staggering 30% of your credit score so you'd want to keep your balance within 10% to 30% of your limit so as not to stand out (in a bad way) in the eyes of your card issuer.
FICO Credit Score Factors and Their Percentages
|FICO credit score factors||Percentage weight on credit score:||What it means:|
|Payment history||35%||Your track record when it comes to making (at least) the minimum payment by the due date.|
|Amounts owed||30%||How much of your borrowing potential is actually being used. Determined by dividing total debt by total credit limits.|
|Length of credit history||15%||The average age of your active credit lines. Longer histories tend to show responsibility with credit.|
|Credit mix||10%||The different types of active credit lines that you handle (e.g., mortgage, credit cards, students loans, etc.)|
|New credit||10%||The new lines of credit that you've requested. New credit applications tend to hurt you score temporarily.|
3. Don't just pay the minimum on credit card.
Paying just the minimum amount due on your credit card bill barely scratches the surface of your total debt and will only serve to increase your balance, as interest charges and fees will continue to compound. As much as possible, pay off a significant portion of your total bill (if not the whole amount) every month until you are way below your credit limit and out of danger of a reduced credit score.
4. Don't close old and unused credit accounts.
Here's a false notion that many consumers learn the hard way: closing old, paid-off credit accounts that are no longer in use won't make much of a difference. In fact, closing accounts can hurt rather help your credit score because it shortens the length of your credit history, which makes for 15% of your overall score. The longer your "good" credit history, the more creditworthy you are to the system and to creditors.
5. Don't get lured by every attractive deal.
Let's face it. Every bank or credit card company would want to get you as a customer if you are a good borrower, or have the potential to give them substantial income. While it is tempting to give in to the many offers that you are constantly bombarded with, don't. New credit applications could influence 10% of your score, and you could end up mired up in all that debt. Switch cards only when you are looking to reduce your debt and make use a really advantageous deal such as a 0% balance transfer.
6. Don't forget to read the 'fine print'
While Pres. Obama is still working for a law that protects consumers from abrupt interest rate changes and undisclosed fees, you have to safeguard your own interests in the meantime. Always read the fine print to know what your bank's terms are.
7. Don't hesitate to consult with your creditors or a reliable debt counselor if you can no longer meet your payments
If you have already fallen behind in your payments and there's little chance of getting your accounts current anytime soon, consult a reliable, non-profit credit counseling agency for the best options of working out your debts with creditors. Alternately, you can also approach your creditors directly and explain your situation. You may be surprised at how many banks are ready to arrange a lighter payment scheme with willing customers, rather than lose the whole balance if the client files for bankruptcy.