How to Achieve and Maintain Great Credit
Having and maintaining a good credit rating in today's economy is essential for obtaining just about any type of credit(credit cards, car loans, personal loans and mortgages) – When applying for a loan, your credit is a creditors primary instrument of focus when deciding to approve or deny you. But having good credit goes further than just qualifying for a loan or getting approved for a credit card. Your credit standing will dictate the overall terms of your loan, directly affecting things like interest rate and how much your creditor is willing to lend. All in all, it is in your best interest to build and maintain a good credit standing if you plan on buying a home, leasing or financing a car and getting a credit card.
Wether you are rebuilding damaged credit or simply looking for pointers on maintaing a good credit score, the information below can help you. Before you read our pointers on building and maintaining good credit, it is important to know what shows up on your credit report - and what doesn't...
Accounts that show up on - and affect your credit report:
- Mortgage loans
- Credit cards
- Automobile loans and lease
- Personal loans and installment loans
- Education loans
Accounts that do not show up on - and do not directly affect your credit report
- Cellular phone bills
- Electric/heat/gas/water bills
- Business credit cards or loans that aren't personally guaranteed
- Health insurance bills
- Automobile insurance bills
*Remember - while the above accounts are not directly reported to your credit every month, this does NOT mean you can stop paying them with out any reprecussions. In fact, if you do not pay these accounts on time they may go in to collections and will then be reported to your credit, hurting your score!
1. Keep your revolving account balances at 1/3 (one third) of your high credit.
This mainly applies to credit cards and personal loans. A common misconception is that no matter what, as long as you pay your bills on time your credit will go up and stay strong. This is not entirely true. While paying your bills on time is conducive to great credit, if your credit cards and or personal loans (revolving accounts) are “maxed out” or the balance you carry is close to the maximum you are allowed to borrow, your credit may be negatively affected even if you are making timely payments.
Example: You have an American Express Credit Card with a maximum spending limit of $3,000. Your balance on this credit card is $2,800 but you pay your payments on time. – while paying your monthly payments on time is necessary, the balance in this scenario is too high respective to the spending limit and may be adversely affecting your credit score; the balance in this case should be around $1,000.
2. Don't completely pay your credit cards off every month.
Having no credit is worse than having bad credit. Part of how the credit buereuas determine your credit score is by seeing how your react to having balances on your credit cards and how you pay the money back. Going back to the “One Third” rule, do not pay off your credit cards in full every month; it will not have as great of an impact on your credit score as you may think. Instead, keep a balance of 1/3 your credit limit for best results.
3. Do not pay your bills 30 days late.
Most creditors allow for a “Grace Period” - a window of about 10 days after your minimum monthly payment is due - to receive the actual payment with out charging you a late fee or penalizing you. It is important to know that if you pay your [credit card, car loan etc.] bills 30 days after your due date, your creditor will most likely report this lateness to the credit bureaus. The credit bureaus will take your late payment into consideration and re adjust your credit score (for the worse) accordingly. Depending on the type of account you are 30 or more days late on will dictate how much your score goes down. A late mortgage payment will have a greater negative impact on your credit than a small credit card because the balance of the mortgage is far greater than the balance of your credit card and therefore holds more water in the eyes of the credit reporting agencies. The single most important thing you can do is make timely payments on those accounts (see above) that directly affect your credit.
