Your credit score is based on information provided to credit reporting agencies from credit card companies, banks, and other creditors, such as your mortgage holder.
The range of the score from the top credit reporting agencies is between 300 and 850. (VantageScore 2.0 scores run between 501 and 990.) A good goal when working toward an excellent credit score is somewhere in the 700s.
After working hard to decrease debt and improve your credit score, the last thing you want is to slip back into paying interest rather than earning it.
Once you’ve built your credit up to a score in the 700s or 800s, develop the following habits to maintain that great score:
Keep Up the Habits That Improved Your Score
- Make sure you continue paying your bills on time and never miss any payments.
- Automatic payment options or calendar reminders are great resources for helping you avoid missing payments when you’re distracted by life’s vicissitudes.
- Remember that your payment history has a strong impact on your credit score.
- If you miss a payment or you’re late, it will affect your score heavily for at least two years and will remain on your score for up to seven years.
- Sometimes it’s impossible to avoid financial troubles. When this happens, contact your creditors.
- They may be willing to negotiate new payment solutions or reduce your interest rate.
- It’s possible that your creditors have experienced similar troubles themselves and will be sympathetic to your situation.
- If you’re carrying a balance on any of your credit cards, keep it down to 30 percent or less of the limit.
- The relationship between the amount of debt and the remaining available credit is known as credit utilization.
- It is sometimes possible to increase your credit limit but don’t increase your spending.
- Stick to your budget.
- Once you’ve put together a good plan for saving and spending, it’s okay to review and update the budget, but don’t ditch your spending boundaries.
- It can be tempting to experience some freedom as your bills decrease and your income increases.
- The longer you maintain a strict budget, the stronger your financial stability will become.
Strategically Manage the Rest of Your Debt
In addition to credit cards, you may have a mortgage, auto loans, and other lines of credit. Naturally, it’s better to keep your debt load low.
At this point, avoid new debt as much as possible. Every time a new lender makes a credit inquiry, your score can be negatively impacted.
When the new account opens, your score will take another hit. Stick to your goals of saving for the things you want and only opening a new line of credit when you absolutely can’t avoid it.
If you do have to apply for credit, make sure you get your credit shopping completed within a two-week period to minimize the hits to your credit score.
One mistake that people sometimes make is closing their credit cards after they’ve been paid off. This may seem like a good move for keeping your excellent credit score up, but it actually has the opposite effect.
Open credit card accounts without a balance improve your credit utilization. When you add up your multiple credit lines (that have a zero to low balance,) you can maintain a big difference between your debt load and available credit.
There is one exception to the rule of not closing your credit cards. If you have a lot of cards with low balances, it is better to transfer all those small debts into one larger account.
Pay attention to your credit utilization ratio as you make a balance transfer for the best results.
Start Saving for Emergencies
A fairly small percentage of people in the United States have enough money to keep themselves afloat if they had to live off their savings. There are many reasons for this, including rising living costs and incomes that haven’t kept pace.
With your debt load under control, it’s time to start saving aggressively. Ideally, you should have enough savings to survive for six months without a paycheck.
You can start with a lower goal and get enough for a single month into savings, then move forward a month at a time.
Don’t stop with your long-term emergency savings. Keep a savings account for a car that needs repairs or for major home repairs.
It’s also important to think about retirement. If you have set up anything through your employer, this may be the first step to take.
Additionally, learn how to invest for savings, so you can start to make money on the interest.
Contact Creditors If You Spot Errors
Although you want to avoid initiating credit inquiries from lenders, you should keep an eye on your credit score. You may be doing everything right to keep your score up, but sometimes other people make mistakes.
There are also risks to consider such as credit card fraud and identity theft. By running your own free credit check, you may catch these situations before too much damage has been done or at least soon enough to prevent more damage.
Credit monitoring services can keep a more consistent eye on any dips or unexpected changes to your score.
Benefit From Your Excellent Credit Score
What other steps have you taken to improve your credit score? How have you kept your motivation for avoiding new debt?
Remember a good credit score can lead to lower interest rates, freedom from increasing payments, easier approval for rental situations, and even better insurance rates and employment opportunities.
Did you know that your personal credit score also affects your business credit score and ability to start or grow a business? Find out more in Does My Credit Score Affect My Ability to Start a Business?
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