Your credit report and credit score are a summary of your bill paying history that will affect your ability to purchase items on credit. Taking good care of your personal credit report and score could save you thousands of dollars in interest over your life time, and give you the buying power you may need to purchase a home or auto. Potential employers and insurance companies also may pull your credit report. Because your credit report determines the level of risk a creditor might experience when loaning you money or providing you services, the better your score, the lower their risk is with you. Here are ten things you can do now and in the future to take good care of your credit.
1. Pay your credit bills such as credit cards, car payments, mortgages, and installment loans on time. Your credit report keeps track of the number of late payments you have had over the past seven years. Recent late payments will hurt your credit report more than something that happened six years ago.
2. Get your free credit report once a year to verify its accuracy. Errors do sometimes occur so consumers need to be aware of what is on their report and check it regularly. Another reason to check credit reports annually is to watch for potential identity theft which is a growing concern. The three credit bureaus are Transunion, Equifax, and Experian. You can get your free reports at www.annualcreditreport.com or by calling 877-322-8228.
3. Avoid carrying credit card balances that are near the top of your credit line. If you carry a balance of $4,950 from month to month on a $5,000 maximum credit line, you are considered a higher risk and your credit may be negatively impacted. Don’t carry large credit card balances if possible. Make it a goal to pay off credit card balances every month.
4. Evaluate the number of credit cards you need to carry, but do not close all unused credit lines. It may be beneficial to your credit report to have some credit cards with zero balance to show you have self discipline and that you don’t carry a balance every month. If you have a significant number of open zero balance accounts, close some, but not all of those accounts.
5. The length of time you have responsibly managed credit is important. It may be wise to not close older credit cards even if you no longer use them. Keep all unused credit cards in a safe place.
6. Do apply for and take good care of two or three types of credit lines to show responsible repayment habits such as a credit card, car loan, and mortgage loan. Never take out more credit than you can comfortably afford to repay. It is probably wise to use only one or two credit cards.
7. Remove your name from direct marketing lists and call lists. This way you will have fewer temptations to spend money on credit. Also, with fewer solicitations coming your way, the identity thieves will have less opportunity to get your personal information. The National Do Not Call List is at www.donotcall.gov or 888-382-1222. To remove yourself (“opt out”) of national marketing lists from the three credit bureaus contact 888-567-8688.
8. Stay in touch with creditors such as medical bills, and try to make payment arrangements with them so that accounts do not go to collection agencies. If accounts do go to collection make payment arrangements promptly with the collection agency to avoid legal action to collect the debt. Avoid all legal actions to collect debts including bankruptcy.
9. Do not apply for credit you do not need. Many stores will run a promotion to get you to apply for their store credit card and give you a discount on your purchases that day. If you already have many open credit lines this additional credit card could affect you negatively. Or if you use the card but forget that you charged something because it is a new account you may have negative repercussions from a late payment.
10. Don’t apply for several credit applications in a short amount of time. Each credit application reduces your credit score slightly. (An exception to this would be if you are shopping for credit for a car or a home, you may safely apply for several loans over a two week period when looking for the best terms without harming your credit report.)
Keeping in control of your credit habits with responsible borrowing will help your long term credit choices.
Sara Gilbert is Group Manager for the Colorado branch of GreenPath Debt Solutions; a member of the National Foundation for Credit Counseling.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.