How to Maintain a Good Credit Score
If you have a high credit score, you enjoy lower interest rates on your credit cards and other loans, as well as lower insurance premiums, security deposits, and fees for contract services. Those who understand how the credit scoring system works and adhere to it usually earn good scores.
Know What Goes Into a Good Credit Score
The number five specific pieces of information are used to compute your credit score: your record of remuneration, the amount of revolving credit utilized, your age of credit history, the balance mix of credit, and the history of new credit.
Unfortunately, the credit scoring system does not always accurately reflect a person’s borrowing risk, especially when their income is very low, and many are people of color. Scoring models have been said to have an unsatisfactory history of perpetuating bias in the financial sector, for example, by including home values but neglecting rental values, which in turn has helped better the financial status of White individuals but has disadvantaged minority groups.
On the downside, there are services like Experian Boost, which allow consumers to have utility payments documented on their credit reports. Other services can get your monthly rent payments onto your credit report. But conventional scoring will still work with these lenders’ systems, so it’s important to work towards maintaining a good credit score.
Pay Your Bills on Time
All your payments are imperative, not just for your credit cards and loans. Even if you have not signed up for any of the individual services that can post your bill payment activities to the credit bureaus, failure to make timely payments could result in credit reports indicating that you fall behind. However, continue to pay all of your bills on time to maintain your good credit.
Keep Your Credit Card Balances Low
The higher your credit card balance compared to your credit limit, the worse your credit score will be. Your combined credit card balances should be within 30% of your combined credit limits to maintain a good credit score — and the lower the better.
It’s unwise to request more than 30% from your credit up to the limit of your credit account. The card issuer typically reports the balance when your statement closes, that’s the number that will be reflected on your credit history. It’s important to review your accounts and pay down your balances prior to your billing cycle closes.
Don’t Close Old Credit Cards
When you close a credit card, your credit score will suffer because your credit card issuer will cease sending you updates to the three major credit bureaus (Experian, Equifax, and TransUnion). After 10 years or so, your credit bureau will delete any closed account’s historical information from your credit report, and as a result, your credit history will lengthen and affect your average credit age.
Closing a credit card decreases your available credit. For instance, if you have three cards with a combined credit limit of $10,000, and you select one with a $3,000 limit, your combined credit limit will be reduced to $7,000. Since your goal is to keep your credit card balances below 30 percent of your available credit, closing that card will decrease your threshold by $900.
Limit Your Applications for New Credit
Too many inquiries made by credit card issuers can also adversely impact your score. For lenders, multiple credit card applications within a short time period can make you look risky, as multiple requests for a loan are considered comparable. Only use your credit card when it’s warranted. A new credit card account also decreases your average credit age.
Watch Your Credit Report
Just because you’re doing everything right with your credit doesn’t mean other partners will do the same. Errors that are listed on your credit report can cause a drop in your credit score.
Identity fraud and credit card fraud can also lead to incorrect information on your credit report. Checking your credit report frequently will identify and correct any errors that are preventing you from keeping a good credit score.