How to maintain good credit scores
Your credit scores can be an important asset, especially if you’re planning on applying for major financing like a mortgage in the future. Strong scores can help you qualify for more financing options and borrow at lower costs, helping you achieve your goals sooner and potentially save significant money. How to obtain and maintain high credits scores isn’t necessarily common sense, though. Here are some important tips to follow to help you achieve great credit scores.
Pay your bills on time
To avoid taking a big hit to your credit scores, you should strive to always make at least the minimum payments on your bills on time. If you keep enough funds in your bank account to cover your bills, consider setting up the autopay feature when available, so you don’t forget these payments. If you anticipate being unable to make a payment on time, try contacting the biller before your payment is due to ask for an extension or another arrangement. While lenders or creditors may not report overdue payments as late until they’re 30 or 60 days past due, it’s usually better to be safe than sorry. Negative marks that make it onto your credit report may remain for as long as seven years.
Don’t carry high balances on your credit cards
Even if you pay off your credit cards in full each month, running up high balances has the potential to negatively impact your credit scores. The combined balances across all your credit cards compared to your combined credit limits across all your cards is known as your “credit utilization ratio.” If your ratio is above 30%, it may be harming your scores. The simplest ways to avoid this are by requesting credit limit increases on your cards or decreasing your card balances. Thankfully, unlike other credit factors, credit utilization has no “memory,” so as soon as the issue is corrected, your scores should improve accordingly.
Avoid “hard pulls” on your credit report
Even something as innocent as opening a savings account could potentially put a temporary ding in your credit scores. Opening a bank account or requesting a line of credit or loan from a financial institution usually involves an inquiry into your credit history. This can be done with either a “soft pull” or a “hard pull.” A hard pull must be authorized by you, and it results in a small and temporary drop in your credit scores that may last for as long as two years. Normally, these minor hits to your scores aren’t cause for concern, but if you’re planning to apply for a major loan in the near future, multiple hard pulls could affect the terms of your loan. Therefore, if you have borrowing plans on the horizon, avoid opening any unnecessary new credit, and ensure any credit pulls you agree to (such as for bank products, rental agreements, etc.) do not involve any hard pulls.
Avoid swearing off credit cards altogether
In one of the apparent ironies of credit score logic, the seemingly responsible act of avoiding credit cards altogether can in fact hamper your scores. Maintaining a long credit history contributes to your credit scores and so does using a mix of credit types. Having at least one credit card can help with both, and as one of the few credit products that can be 100% free if used responsibly, credit cards can be a long-term boon for your scores. Unless you have issues with compulsive spending, maintaining credit cards and using them responsibly is usually in the best interest of your scores.
Check your credit reports regularly
Did a financial institution make a mistake in one of your credit reports? Has someone stolen your identity and opened a credit account or loan in your name? If you don’t regularly check your credit reports, you may never notice, and if these discrepancies aren’t corrected, they could harm your scores. Not to be confused with a credit score, a credit report is the detailed history of your credit, including any derogatory marks such as late payments. It’s recommended that you check your credit reports at least once a year and report any inaccuracies.
Depending on where you’re starting from, building strong credit scores can take months. But the sooner you start following these good credit habits, the sooner you can reach your goal.
To learn more about credit scores, read more here. If you’d like a free consultation to discuss your credit situation and your home financing options, get in touch today.