The American public has been both confused and incensed at the debt debate, by not only at how prolonged and divergent both sides have been, but also at how the government allowed us to get into this unfortunate and avoidable situation. With a little bit of planning and diligence, bad credit can be avoided whether it belongs to the average consumer, or big government. It’s actually pretty easy to maintain a clean credit score. An ounce of prevention is worth a pound of cure and there are some simple steps you can take before your credit rating starts to plummet.
Know Thy Credit Score
Credit scores are based on a combination of factors. Five key factors are as follows: payment history, mix of credit, level of debt, credit age, and recent credit. Even if you pass the test in all of these categories, keep in mind that credit reports are not faultless. An error on your credit report is not an unusual occurrence. For this reason alone, it is imperative that you check your credit report regularly; besides simple error, there is also the risk of identity theft and credit card fraud.
Keep Thy Balances Low
While it can be gratifying to be extended to a higher credit limit, it is no reason to run out and max out your cards. Keep in mind that the higher a balance you are carrying, the less available credit is being offered to you. This will adversely affect your credit score. Every so often, lenders will raise your credit limit if requested to do so; if you’ve had a credit card for a couple of years without an increase in your limit, it may pay to call the lender and request one.
Limit the Amount of Credit Applications
While credit inquiries are only a small part of your overall score, (10%), they do in fact count. There is no need to go crazy filling out credit card applications. Carrying one each of the three major cards should suffice for most consumers’ credit card needs. The same holds true for loans; applying for loans will lower your score. Keep in mind that new cards or loans will also lower your credit age when averaged in with your current number.
Keep Inactive Credit Cards Open
Contrary to what many would believe, closing unused or old credit cards will actually lower your credit score. Credit age counts for 15% of your overall score. Closing an older credit card will shorten the length of your credit age, thus lowering your score. Many erroneously believe that this act will be to their advantage, but in the end, they suffer lower credit scores.
Pay Off Credit ASAP!
The old belief was that credit card companies prefer those who paid off only the minimum balance due on their cards: it makes sense because the lender makes more money off folks who handle their credit in this manner, given the high cost of interest. The sluggish economy, rising unemployment rates, and collapse of the housing market now have lenders making a slight adjustment in their thinking. The borrow-and-quickly-repay crowd is now their preference. Every bill you pay has the possibility of ending up on your credit report, even non-credit bills. While most won’t, should you happen to fall behind on your payments, it may very well end up on your credit report.
Go Forth and Keep Thy Credit Score High!
So there you have it, a few simple steps that you (or elected officials in Washington) can take to derail the momentum of credit catastrophe and maintain a clean credit score. Of course, the politicians seem to feel they have averted the problem for now, but these tips are still worth keeping in mind. Ten years goes by quickly and Washington’s budget problems are never solved; they are only postponed.
How about you? What has worked and what hasn’t for your credit score? Share below with your experiences!
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