Good Credit Score
Tips on How to Maintain a Good Credit Score
Having a favorable credit score can earn you excellent interest rates on loans and credit cards and low premiums on automobile insurance. It can even give you a better chance of passing a background check run by a potential landlord or employer. Having a poor credit score can put you in the red because of excessive interest rates, and creditors are hesitant to provide loans to lenders with bad credit.
Now that you know why maintaining a good credit score is so important, let’s look at the steps you can take to keep your credit score high. Raising your credit score can take months or even years, but credit scores can decrease by a hundred points very quickly, so it is important to manage your credit carefully to maintain or raise your credit score. You can write letters to the reporting agency and to the creditor to dispute any errors. Send in copies of any supporting documents that may help your case.
Your payment history accounts for a mighty 35% of your total credit score. This factor is the largest contributor to your credit score, so you want to pay close attention to maintaining a good payment history when you are managing your credit score. Make sure to always pay your bills on time, and never miss a payment. Your credit card bills, automobile bills and your mortgage count toward your payment history. Since utility, insurance and phone accounts do not provide lines of credit, they don’t typically report to the credit agencies, but these accounts can affect your credit score if they’re sent to collection agencies.
The second largest factor that contributes to your credit score is credit utilization. Credit utilization is the percentage of your total available credit in relation to the credit that you use. It’s best to keep your credit utilization under 30%. Your credit score may take a dip if you let your credit utilization reach above 80%.
When trying to maintain a good credit score or raise your credit score, you do not want to close revolving accounts, even if you do not use them, because they keep your total available credit high. Closing these accounts may reduce your credit score even if you do not increase your balances on other credit cards. One of the best ways to increase your credit score quickly is to pay off your debt. A good strategy is to start with your credit line that has the highest interest rate so that you can avoid paying as much interest as possible.
Length of Credit History
The length of your credit history accounts for 15% of your credit score. Creditors like to see a long history of credit use because it gives them more information to evaluate in order to determine your credit worthiness. They feel that they can more accurately predict your financial stability when they have access to as much of your history as possible. You should avoid closing older revolving credit accounts when trying to keep your credit score high.
Types of Accounts
Ten percent of your credit history is derived from the types of credit accounts that you use. Creditors like when individuals have a mix of different types of credit accounts, such as revolving accounts, installment accounts and mortgages. Some examples of revolving accounts are credit cards, department store cards, and charge cards. Student loans, automobile loans, home loans, and personal loans are common installment accounts. By having a healthy mix of credit accounts, you show creditors that you have experience effectively managing different types of credit accounts.
The last 10% of your credit history comes from credit inquiries. All types of credit inquiries are displayed on your credit report, but some inquiries affect your score and others do not have an impact. Credit inquiries made by creditors who are evaluating your credit worthiness for credit cards, mortgages, or loans can decrease your credit score. You should avoid applying for several credit cards in a short period of time if you want to keep your credit score high.
Your credit score will likely not be affected by several inquiries for mortgages or automobile loans if they occur over a short period of time. Checking your own credit history will not affect your credit score, and inquiries made by potential employers, landlords, and companies performing pre-screening for credit and insurance accounts will not affect your credit score, either.