Useful advice for managing your credit score.
Submitted by New Jersey Bankruptcy Attorney, Lee Perlman.
A healthy credit score is almost essential for comfortable living these days. Without credit, it’s nearly impossible to get an auto loan, mortgage, or personal loan if needed. Interest rates are excessively high for those who have limited or bad credit. Having a good credit score, — or even better — a perfect credit score, can make life a lot easier and affordable for when you need to borrow money for those large purchases.
Detailed below is a list of habits consumers have formed in order to build and maintain an excellent credit score.
1. Don’t Max Out
The first common mistake that most people make with their credit cards is that they max them out for things they cannot afford. The trick to making credit work for you is to still live within your means. In other words, only use your credit cards for things you have cash on hand for. People with excellent credit almost always keep low balances on their cards, and often do not ever pay interest because they pay their balances in full every month (which also saves them money).
Added tip: When trying to build credit and learn to be disciplined with your finances, you can use your credit card for any purchase and then pay your credit card bill online as soon as you get home. This way your payment will never be late. If you have a rewards card then you are also earning rewards, which puts money back into your pocket.
2. Mind the Utilization
Credit utilization is one component that makes up your credit score. So, what is it? Credit utilization is a percentage of how much credit has been used divided by the total amount of credit available. People with excellent credit scores maintain a credit utilization at or under 30 percent.
3. Never Miss a Payment
Making on-time payments is another major factor that affects your credit score. Always, always, always, pay your bills on time. Even if you can only afford to make the minimum payment, be on time. Those with excellent credit pay their bills on time, every time. The best way to ensure you never miss a payment is by paying early and paying often.
Added tip: There’s no rule that says you can only pay your credit cards bills once a month, so feel free to make multiple payments in a single billing period if you want to. Even if you pay half your bills twice per month, you’ll actually pay down your debt faster because you’ll squeeze in an extra payment by the end of the year.
4. Never Pay to Carry
Paying an annual fee to carry a credit card isn’t just annoying, it’s throwing money away. If at all possible, find the credit cards that do not have annual fees and still come with rewards. Some of the best cards with the most benefits and features do come with an annual fee, so if your card is packed with benefits such as premium concierge service, then carrying that card makes perfect sense.
If you’re in the market for a new credit card, you could also narrow down your search to credit cards that waive the annual fee for the first year. That way you’re at least saving money for that first year. During year 2 you can reevaluate the card to see if the features and benefits outweigh the annual fee.
Paying interest is another way of throwing your money right down the drain. We all know that it can’t always be avoided, but we can control how much credit card interest we’re willing to pay. If you pay your balances in full during the grace period, then you will never pay interest. There’s also a way to regain interest-free payments by paying your account in full for two consecutive months. Then on that third billing period, you should no longer be charged interest.
Most credit cards have a range of interest you can be charged. For example, it may be something like 12.99%-22.99%. If you find that you are being charged the highest interest rate possible on your credit card (22.99%) and you manage your account responsibly, there should be no reason why you can’t try to negotiate a lower interest rate if you aren’t happy with what you’re currently being offered. If your credit card company refuses to lower the interest rate, simply tell them you will have to take your business elsewhere.
Added tip: If you’re shopping around for a new credit card, find one with a sign up offer that comes with 0% interest for at least 12 months. Once the intro period ends, you always have the option of cancelling the card or performing a balance transfer to a new card that comes with a new 0% intro APR.
5. Have Multiple Lines of Credit
Lenders want to see a healthy mixture of lines of credit including credit cards, auto loans, mortgages, and even personal loans.
There are a few reasons for this. Multiple types of credit lines shows that lenders are willing to trust you with their loans no matter how large or small they are. The other reason ties back to habit #2, your credit utilization. The more available credit you have, the higher your utilization will be (assuming you aren’t using any additional funds as “free” money).
6. Monitor Your Credit
Keeping a close watch on your credit report is always good advice. With all the fraudulent activity of identity theft and data breaches, everyone should be monitoring their credit. Everyone in the U.S. can access their credit report for free (once a year) from all three credit bureaus. It’s also a good idea to take a look at your credit report more than just once a year because that allows you to catch errors quickly, and watching the progress of your efforts can be rewarding.
Added tip: There are many sneaky websites that make you think you can get your credit score and report for free, but then require a credit card number on file before you can get your credit score. It’s important to avoid these companies because you shouldn’t have to pay to see your credit score. Find a safe, secure, and free service where you can access your credit score and credit report 24/7.
Always keep in mind that time heals all wounds when it comes to credit. Although negative marks may stay on your credit report for up to seven years, the more recent negative marks matter more than older ones. So don’t give up! If you follow these tips to the best of your ability, then you will be able to achieve excellent credit someday soon.
Published here by the Huffington Post.