A good credit score is crucial to buying a home or auto at a competitive interest rate and saving on insurance and utilities. It can also be key to obtaining the job or apartment you want. Knowing that you need a good credit score is one thing but understanding how to get it is another. There’s no rocket science to getting and maintaining a high credit score.
You just need to create and stick to positive credit habits to get you from where you are now to the credit score you desire. Here are five habits of people with excellent credit scores to try out in your life.
1 - No spending beyond your limit
The first rule of building and keeping good credit is to always live within your means. A credit card or line of credit isn’t an invitation to spend. Credit cards are a great tool to help build and maintain your credit score but if you spend when you shouldn’t it can be a slippery slope to a suffering score. You must strike a balance between regularly using your credit so that creditors keep raising your credit limits but avoiding charging things you can’t afford.
2 - Always pay on time
One of the habits that has the greatest impact on your credit score is making consistent timely payments. Creditors and lenders give credit and loan money based on the understanding that you will repay at the agreed time and the full amount due. If you fail to do this, you cannot be considered worthy of excellent credit. Never pay bills at the last minute to avoid the chance of a late fee or a negative entry on your credit report.
3 - Build a positive credit history
Your credit history is the track record of how responsible you were with credit in the past and is a significant portion of your credit score calculation. To do this, you need to make payments on time, in full, occasionally open new accounts, and use the blend of new and old credit responsibly. Even one missed or late payment looks bad on this all-important historical record. To help with this, only charge things you can pay off in full each month.
4 - Pay twice a month on each payday
Credit card statements cut once a month and are due on a specific date like clockwork. Interest is charged on the statement balance on your credit card. If you pay off the balance before the statement cuts, in most cases, you can avoid interest entirely. Since all credit card issuers accept online payments, you can pay down your credit cards twice a month to align with your paydays. That way you’ll never face a large bill at month’s end.
5 - Don’t close old accounts
If you have older credit cards, you might consider closing them if you have newer cards with better benefits like cash-back or rewards, or older cards may have annual fees you don’t want to keep paying. That’s fine, but before you close an older account, check to see if it will drop your average age of credit, a component of your credit score. Add up how many years each card was open then divide by the total number of cards to see your average age of credit.
If you’re rebuilding your credit after bankruptcy, it’s important to start with a foundation of good habits. In addition to these five mentioned, it’s wise to set yourself up on a budget so that you know you can always pay your bills and you don’t wind up back in excessive debt. To find out more about rebuilding your credit, check out Credit Score Keys.