Friends recently had their credit identity stolen. Â While watching them deal with the fallout from that, it was tempting to close every credit account that we no longer use, and there were a number of them after 36 years of marriage! Â Instead, we opted to enroll in an identity protection program
. Â In a perfect world, I admire Dave Ramsey's approach
- live as though your credit score doesn't matter. Â Pay cash! Â According to some reading I've recently done
, that was a wise decision not to close those accounts. Â There are four major areas that impact your credit score. Â How well you manage these can greatly impact your credit:
-How much you owe compared to how much credit is available to you
-How long you've maintained accounts in good standing
-How many different types of credit you have
-How well you've managed your payment history.
Based on these four areas, here are four tips for managing your credit score:
1. Â Understand credit utilization
- it sounds strange, butÂ the amount of credit you have available versus the amount of credit you have used is a crucial piece to the credit score puzzle.
2. Â Start young to build a good credit history
. Â Proceed with caution, but learning to be responsible for a gasoline credit card or a secured credit card that can be paid in full every month gets you going. Â When you are ready to buy that first home
, you have an established pattern of responsible use of credit.
3. Â Use different types of credit responsibly
- gasoline card, department store card, etc. - but if you don't think you can use them and make the payment in full, you are better off to leave them alone. Â Think of things you buy anyway - gas, groceries, clothing - and consider whether you can control your spending if you are paying with a credit card. Â If so, expand your types of credit. Â
4. Â Manging your payment history is the single biggest factor.
Â When you get off track, it takes a long time to recover. Â Enter that charge in your checkbook or put the cash in an envelope the minute you make it, then pay the bill when it arrives.
There is much more than this simple summary to managing a good credit score, but these few steps will have you headed in the right direction.
What other ideas or suggestions do you have?