Credit scores are something very few of us spend much time thinking about — until we’re sitting at a car lot or shopping for a home. But if some consideration hasn’t been given to where that credit score currently sits, chances are, loan terms will be less than favorable.
There’s no need to sentence yourself to years of higher-than-necessary payments. Instead, start establishing these habits now to keep your credit score in the best range possible.
1. Streamline your accounts
When you’re charging small amounts to many cards, your credit score could suffer for a few reasons: it becomes harder to manage accounts and make on-time payments, and the more cards you have with a balance, the more your score can be negatively impacted.
Instead, streamline your accounts and use the one or two cards that have the best terms (and rewards) for your current situation.
2. Don’t close down old accounts
Your credit score is largely based on the average length of your credit history — something you could inadvertently change by closing old accounts.
Say for instance you have one credit card that has been open for 15 years and two others that have been open for three years and four years respectively. By closing the oldest account, you’ve essentially cut the length of your credit history in half.
If the card issuer threatens to close inactive accounts on your behalf, consider using the card for one purchase and paying off the balance immediately.
3. Pay bills on time, every time
Making on-time payments may seem like common sense, but considering the heavy weight payment history carries in determining your credit score, it’s a message worth repeating.
According to FICO, payment history accounts for a whopping 35% of your credit score. This rating takes into account everything from payments made even a few days late to missed payments resulting in an account sent to collections.
With payment history, it’s all about longevity — the longer you’ve gone with a spot-free payment record, the better your score looks. If you do miss a payment and it lands on your report, only the passing of time will lessen its impact.
4. Keep balances low, low, low
Just because you have a large amount of credit available, it doesn’t mean it’s a green light to spend it all. In fact, the more available credit that’s eaten up, the worse you may look to a potential lender.
Credit utilization accounts for 30% of your score and is viewed two ways: how much you’ve charged on individual accounts and how much overall credit you’ve used spanning all cards, in relation to the total amount you have available.
A good rule of thumb is to keep your utilization at 30% or lower at all times.
5. Take advantage of your free credit report
You may think you’ve covered all your bases by making on-time payments and keeping your balance low, but identity theft has run rampant in recent years and an inaccurate credit report isn’t outside the realm of possibility.
Clearing up inaccuracies after they’ve occurred and some time has passed can be a lengthy, hair-pulling process. You can stay on top of your credit report by requesting yearly reports from each of the three credit-reporting agencies: Equifax, Experian, and TransUnion.
Establishing strong habits now will prevent credit headaches later. Even if it feels painful at first, it’ll be entirely worth the effort — guaranteed.