Good credit can do more than get you approved for a new credit card or loan; it helps you save money by getting you the best terms and rates on credit cards, mortgages, auto loans and more. If you’re new to the credit world, never fear; CreditKarma.com has gathered a few of the most time-tested methods for keeping up good credit health for anyone, no matter where your credit is starting from.
Let’s take a look at three of the best tips and how you can implement them in your credit life.
Your credit report is a long and data-rich document that contains information about your credit and financial life. Are you paying off a student loan? It’s there. Have you ever made a late credit card payment? Unfortunately, that’s there too.
According to the 2010 Consumer Financial Literacy Survey, approximately two thirds of adults haven’t checked their credit report in the past year—even though it’s free. Avoid joining that statistic by getting a free copy of your credit report from each of the three credit bureaus at AnnualCreditReport.com. Look for common credit report errors, such as outdated personal information, mistaken or fraudulent accounts or incorrect account details, and dispute the error if you find one.
What you can do: After you check your report for errors, keep on top of your credit by monitoring it in CreditKarma.com’s “My Credit” section. Each time you update your score, you’ll be able to see what credit report changes have occurred since your last update and what caused them.
2. Use your credit wisely.
One of the most important factors in your credit score is your open credit card utilization rate, weighing in at about 30 percent of your score. Your credit utilization rate measures how much of your available credit you’re using at any given time. Here’s how you can calculate it: Take your total credit card balances and divide that number by your total credit card limits. The resulting percentage is your utilization rate.
Ideally, your credit utilization rate should be under 30 percent. Keeping your utilization rate low communicates to lenders that you don’t pose a high credit risk, you use credit responsibly, and you don’t max-out your credit cards. This is one of the most tried-and true methods of maintaining your good credit health. Keep in mind that you don’t have to carry over a credit card balance from month-to-month; you just need to show active credit card use over the month to benefit your credit score.
What you can do: Calculate 30 percent of your available credit limits. Then, set up balance alerts on your credit cards. Some cards permit you to set up an alert when you’re close to a pre-determined spending limit. If you can’t set up an alert, watch your utilization on a regular basis with CreditKarma.com’s “My Accounts” page and curb your credit card spending when you’re close to 30 percent.
Keeping up with your bill payments should be top priority for good credit health. Your on-time payment history accounts for approximately 35 percent of your credit score, so just one missed payment will knock your credit score down.
If you’re just one day late on a payment, you’ll get hit with a late fee. If you’re more than just a little bit late on a credit card payment, your creditor could report a 30- 60- or 90-day late payment to the credit bureaus, which will result in a derogatory mark on your credit report. Unfortunately, it takes at least seven years for a derogatory mark to fall off of your credit file. If you neglect a bill payment long enough, it could be sent to a collection agency, which will significantly hurt your credit score.
What you can do: To make sure you never miss a payment, set up calendar alerts or automatic bill payments.
Bottom Line: These are just the first few steps in getting and maintaining good credit health. You’ve got to have somewhere to start, and these basics will get you started on the right track—the track to saving more money with your good credit.
Bethy Hardeman is the social media maven at CreditKarma.com, a completely free credit management service that provides free credit scores, financial education and personalized savings recommendations. Credit Karma helps more than 3.5 million consumers realize the everyday cost savings of having a good credit score.
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