The Art of Credit Score Maintenance
Four tips to keep a top rating – and land the best financial deals
One of the smartest financial moves you can make is to take extra-good care of your credit score. If you have any inkling you may want to borrow money in the future, your credit score is going to play a big role in what deal you can land. It will also determine if you can qualify for a zero-rate credit card balance transfer.
And as creepy as it may seem, your credit score has a way of insinuating itself into other parts of your life. Move, and open new accounts with the utility company, and you may have to make a deposit if you have a low credit score. Same goes with cell phone plans. A version of credit scoring can be used in some states to calculate your auto insurance premium.
So, building habits that will help you increase a so-so score or maintain a sparkling one will pay off.
1. Pay your bills on time. On-time payments are the single biggest factor in calculating your credit score. In the case of credit card bills, you don’t even have to pay off the entire balance. All that matters (at least to the credit-scoring gods) is that you sent in at least the minimum payment due on time. To be clear: You always want to pay more than that, but from a scoring perspective, on-time minimum payments is all you need. Tip: Set up auto-pay for recurring payments.
2. Use a credit card. The nutty world of credit scoring ignores debit card transactions. The unfortunate reality is that having a credit card and using it once or twice a month – and then paying the bill in full – is a key way to build and maintain a good credit score.
3. Don’t use much of your available credit card line. With each credit card you have a maximum credit limit. A part of your credit score is based on how much of your total combined credit limits you are currently using. Let’s say you have three cards with credit limits of $2,000, $8,000 and $9,000, a total of $19,000. If your total unpaid balances are $3,000 you are using about 16% of the available credit. If your unpaid balances are $5,000 your “debt utilization rate” is around 26%.
The lower your credit utilization rate, the better. A rate below 10% is better than 20%. A debt utilization rate of 20% is going to be scored better than 30%. Typically, once your utilization rate stretches above 30% it could start to pull down your credit score. That’s an argument for paying down your credit card bills. You could also contact one of your credit card issuers and ask for a higher limit. But that’s a risky strategy if there is even a 1% chance you will be tempted to use that credit.
4. Check your credit reports. Your credit score is calculated using data in credit reports from each of the main credit bureaus: Equifax, Experian and TransUnion.
Given the never-ending stream of data breaches, and flat-out mistakes in credit reports, you should periodically check for funky information or signs an identity thief has opened accounts in your name.
It’s free. Don’t ever fork over credit card info to get access to your credit reports. At annualcreditreport.com you can get one free credit report a year from each of the credit bureaus. Create a rolling system for checking your reports, one every four months.
If you find an error, or an account you didn’t open, your report will include information on how to follow up with the credit bureau. If you find evidence of identity theft, a good place to start is the Identity Theft Center operated by the Federal Trade Commission.