Credit 101: 6 Rules of Thumb for Keeping Those Scores High
NOTICE: These are just general guidelines for maximizing credit. As we are in a very unprecedented economic climate, we’d 100% recommend talking to your credit card issuers about breaks to folks who are having a hard time paying off their debt.
Rule #1: Pay your bills on time.
In the credit game, paying your bills on time is vitally important. However, based on your current financial situation, this can be much more difficult! Maybe you missed a payment once, and then couldn’t keep up with the payment over and over again.
Missing payments to creditors doesn’t look great, as they want to ensure that you will pay what you owe them on time and in full. You can’t go back in time, but you can work to show them that you are now a responsible person!
Focus on paying all your bills on time every time. Especially your big-ticket items such as your student loans, your apartment, and your car loan...to the best of your abilities.
Rule #2: Have ideal credit utilization ratios.
Understand what your current credit utilization ratio is. If you already have a credit card with a $1,000 limit and you have $900 spent, this means that your credit utilization rate is at 90%...that’s not good.
However, if you have a credit limit of $10,000, spending $900 now would bring your credit utilization ratio to only 9%...that’s very low.
You typically want to keep your ratio under 30%. If you are having trouble getting a credit card to begin practicing this, one solution is to work with your bank to apply for a secured credit card.
In this scenario you give the bank a sum of money and they issue you a card for the same amount. Then they have the assurance of being repaid, and you have a credit card to start building your good credit history: Win-win!
Rule #3: Don’t apply too often.
When you apply for a loan, your credit report gets dinged with a soft or a hard “pull” as the creditor checks to see your history. Lots of dings may cause your credit score to go down and look worse to those creditors.
If you get rejected for a credit card or loan, don’t apply over and over again to see if you can get a different answer. Instead, look at your credit report to see what areas might be cause for concern to your creditors and start working on ways to fix them!
Rule #4: Improve your negative history.
If you do have negative events on your credit history such as a default or an eviction, don’t despair! It is possible to move on from these, but it will take some time and discipline.
First, make sure you are following game rules 1-3. Additionally, if you are behind on any of your payments, put together a plan to stay up to date going forward. Also, as you stay current on your bills, your previous pulls and delinquencies will actually fall off of your report over time. Typically it's about 2 years for credit pulls and five to seven years for deliquesces.
Your hard work will pay off over time and your future self will thank you!
Rule #5: Maintain a long credit history.
A long credit history is better than a short credit history. It’s that simple! If you only have a credit history of a few months, creditors are not sure how you are going to perform over the long haul and may be wary to extend large amounts of credit.
If you can show that you are responsible for years, however, they will more readily trust you. One of the easiest things you can do is keep your oldest credit card open. Maybe this was your first card from 10 years ago in college and it only has a $500 credit limit. That’s ok!
Keep this open to show that you have 10 years of responsible credit history!
Rule #6: The more the merrier
Having more accounts is better than having fewer. If you only have one credit card, and you pay it on time, that’s great! However, if you have a credit card, an apartment, and a student loan that are all paid on time, to creditors that’s even better!
This shows them that you are responsible and will repay your debts on time. So if you are applying for a home loan, having those extra items on your credit history is going to go a long way in your favor.