Good-to-great credit can make your life much easier. A favorable credit score can get you the best rates, the biggest bonuses, and the top selection of credit card offers available. Part of the process of getting the ideal credit score, however, is keeping it. Already have great credit? Here are five tips to maintaining a good credit score.
Always Pay on Time
Payment history makes up 35% of a FICO credit score. That is by far the most substantial portion of what goes into your score. This makes paying your credit card bill on time each month vital if you want to maintain a good credit score.
Of course, making your payments before the due date is good practice for all accounts, not just credit cards. And, since missed payments linger on credit reports for seven years, making sure you pay promptly is rule number one.
Keep Your Credit Utilization Low
Credit utilization has one of the most significant impacts of your credit score. According to the FICO model, credit utilization (or the amount of money you owe compared to your credit limit) makes up a whopping 30% of your credit score determination.
The higher your credit card balance, the higher your credit utilization – it is that simple. Keeping your credit usage down below 30% is optimal for maintaining a good credit score. This means only spending $3,000 of your credit if your card’s limit is $10,000. If you want to improve your score, try aiming for a credit utilization ratio of less than 10%.
Restructure Your Debt
Part of keeping utilization low is restructuring your existing debt into more manageable payments. One way to do this is through refinancing with popular lenders like Even Financial. Another option might be to contact your lenders to see if they offer refinancing programs you can take advantage of.
Finally, you may choose to utilize a loan/ credit card hybrid product, like the Upgrade Card. These products work by extending a line of credit, which you can use to pay off debt and consolidate them into one payment. You then pay that new debt off at an interest rate up to 10% lower than traditional credit cards, saving you considerable time and money. Even better, these cards work like regular credit cards, too, meaning you can use them anywhere Visa is accepted.
Limit New Credit Applications
While on-time payments and credit utilization are the most important aspects of maintaining a good credit score, keeping new inquiries down is also crucial. When lenders inspect your credit report when considering applications, this is known as a hard inquiry.
Hard Inquiries impact your credit score, and too many can be a red flag for future lenders. Too many new applications might be a sign you are stretching yourself too thin financially. Because of this, try to limit new credit applications to only a few per year.
Don’t Close Old Accounts
Like limiting new credit applications, keeping old accounts active also plays a significant role in maintaining a good credit score. The average age of your credit has some bearing on your credit score, on par with number of hard inquiries.
Closing a credit account reduces the average age of all your accounts. This can make you seem less experienced as a borrower to lenders. And, since closed accounts drop off a credit report after ten years, closing an account is like throwing away built-up financial equity.
Closing an account also reduces your overall available credit. This, in turn, can reduce your credit utilization. The result is a knock-on effect that can cause your score to plummet.
The most important parts of maintaining your good credit score are straightforward. Pay your bills when they are due, and only use your credit when you need to. Following the above advice, however, can make your life with credit significantly more comfortable – and can save you money in the long run, too!
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