Lusting after that shiny, brand spankin’ new car? Want to move into an apartment closer to your job? Good credit is a must.
Car dealerships and landlords will conduct credit checks and some won’t accept a score of below 700 (150 short of a perfect score).
Having good credit means you could potentially enjoy paying a lower interest rate on your credit cards.
Having good credit makes any aspect of a professional life easier to achieve and maintain. If you’re looking into getting your first credit card or are curious about how the system of credit works, look no further, we have you covered.What’s a credit score anyway?
Your credit score is a three-digit number that is used to gauge how well and often you will pay your bills. The score ranges from 300-850 and is determined by your credit history. When you submit an application, the lender checks out your credit score to quickly make a decision. This same decision can easily be made by viewing your credit report, but the credit score makes the decision-making process less convoluted. While there are several different kinds, FICO scores are the most common. Developed by the Fair Isaac Company, the FICO score is used by many creditors to decide whether or not to extend a line of credit.
Pay your bills.
This is the most integral aspect of maintaining and building good credit. This rule applies not only to major credit cards and any loans you have taken out, but to all of your bills including Internet, electric, gas, and store credit cards. Sure, certain bills don’t get reported to the credit bureaus when you pay on time, but if you don’t your credit score could go down.
Continue to pay all your bills on time to maintain a good credit score. Additional tip: Try to avoid making the absolute minimum payments on your credit cards. This will negatively affect your score because credit companies will be able to tell you cannot handle the responsibility of paying larger amounts.Manage your debt wisely.
Don’t neglect those daunting student loans for too long. Credit card balances and how often you pay your utilities on time aren’t the only accounts that influence your credit score. Loan balances and lines of credit also impact your level of debt (they constitute 30% of your credit score). If you have several credit cards open that are either maxed out or close to being there in addition to crippling student loan debt, you can kiss your almost perfect score bye-bye. Having too much debt may cost you dearly in credit score points and make it difficult/nearly impossible to afford your monthly payments. The lower your debt, the easier it will be to maintain a good credit score.
Think before you apply.
Every single time you apply for a credit card or a loan, your score takes a tiny hit. In terms of credit, any hit, big or miniscule, is a bad hit. Credit inquiries only consist of 10% of your credit score, so if you have a nearly perfect score (800), you could face losing 80 points of perfectly good credit. Additionally, opening a new credit account lowers your average credit (15% of your credit score). To maintain a good credit score, you should open new credit sparingly. We recommend one line of credit a year max, if possible.
If you don’t use it, you surely won’t lose it.
Many close their lines of credit after becoming too entrenched in their debt to catch up, because they’re not happy with the credit card issuer, or because they just don’t want the credit card anymore. It’s crucial to know that closing a credit card won’t make your bad track record go away and in some cases, closing a card could hurt your credit score more than it helps. When you close a credit card with a balance, your total available credit and credit limit are reported as $0. Since you still have a balance on that credit card with no credit limit, to other credit companies, it appears you’ve maxed out. This can have disastrous effects on your score.
Closing out old credit cards shortens your credit history. Lenders tend to view borrowers with short credit histories as riskier than borrowers with longer histories because they see you as someone with little experience paying debts and bills. Closing your oldest credit card won’t impact your credit score immediately, however, once the credit card falls off your credit report several years down the road, you might see your score unexpectedly fall.
Feature Photo via We Heart It