Chances are you’ve seen the pop-up ads and commercials with the catchy jingles offering free credit reports, no hidden fees, and instant delivery. How do you achieve good credit? Why is it important?
The better credit you have, the better your chance of being approved for car loans, home mortgages, credit cards, apartment rentals, utility services and more. A good score can award you with a better interest rate on loans, which can save you thousands of dollars over the course of your loan.
There are several types of credit scores. FICO scores are the industry standard and are used by 90% of the top lenders.
Your credit starts building the moment you get your first loan or credit card. Good credit doesn’t happen overnight, it’s something that you are constantly managing and finessing. You can improve bad credit, it just takes some time and financial focus.
Most people with good credit have similar habits when it comes to improving their scores.
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Here are 5 financial moves people with good credit make consistently:
1) They pay their bills on time.
This may seem like common sense, but it can be easy to forget or miss that credit card payment. Your payment history is a huge determining factor in determining your credit score. Use your calendar, set a reminder in your phone, and pay your bills on time.
2) They have different types of credit.
FICO looks at the types of credit you have and offers better scores for those that have a mix of different types of open credit including mortgages, car loans, credit cards, and/or student loans. Although this is helpful, you have to make sure you are in good standing with all of them. Pay them on time or pay them off every month.
Carrying a steady balance on credit cards can harm your credit.
3) They are selective when opening and closing accounts.
While having a variety of credit accounts can be helpful, it’s not good to open credit cards just to have open lines of credit. Just because a department store is offering you 10% off your entire purchase if you open a card, doesn’t mean it’s the best idea.
If you are thinking that opening the card, paying it off, and then closing it won’t affect your credit, think again. When you close a card, you reduce your overall available credit. This can negatively affect your credit utilization rate, which is large factor when calculating your credit score.
If you must cancel a card, consider canceling cards that are costing you money with high interest rates or miscellaneous fees that aren’t negotiable with the creditor. Also, the age of the account is taken into consideration with your score. Keeping your oldest credit account open is positive because it shows a longer and more stable history (as long as you have a good payment history.)
4) They don’t max their available credit.
Another factor in determining your credit score is your credit limits versus how much money you owe. People with good credit don’t max out their credit lines. Lenders like to see less than 30% of your open credit used. The best way to manage your credit cards is to use them, not abuse them, and pay them off every month.
5) They care about and have managed their credit for a long time.
Good credit isn’t awarded overnight. It’s earned. People that have good credit have a history of being financially responsible. They’ve proved that they can pay their bills and loans on time or in full. The more experience you have with establishing credit and paying your bills on time, the more information there is to determine whether you are a good credit risk.
It is up to you to maintain your credit and make sure that it remains in good standing. Federal law allows you to request a free credit report each year. Check your credit report regularly to make sure the information in your credit reports is correct. Your financial reputation follows you wherever you go, so be sure to keep it in good standing.