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Tips to Building & Maintaining Solid Credit
As a rule, a good credit score will improve your chances of getting credit at an attractive rate. Taking steps to improve your score can be well worth the effort.
Improve Your Credit Score
- Check and correct errors on your credit report.
- Pay your bills on time AND pay down credit card bills.
- Pay off debt rather than transferring it between cards or accounts.
- Don't charge your credit cards to the limit. If possible, keep debt to less than 25% of your available credit.
- Going over the limit on a credit card, even by $1, can result in a penalty.
- Avoid finance companies. Even if you pay on time, the interest is high and using these companies is considered a sign of poor credit management.
- Before applying for a mortgage loan avoid:
- Purchasing big ticket items until your loan is approved and closed.
- Opening new credit accounts. New debt temporarily decreases your score.
- Closing credit card accounts, this will temporarily lower your score.
Monitor Your Credit for Free
You can get a free copy of your credit report every year from each of the three national credit reporting agencies. That means you can monitor your credit year-round by ordering one report from each of the three every four months. There is only one online source authorized to give you a free credit report: www.annualcreditreport.com
Credit Score Factors
To make the most of your credit, you need to understand how your credit score is calculated. There are five components to your score, and some carry more weight than others.
- Payment History - The most important factor to a potential lender is whether or not you will pay your bills in full and on time.
- Amount Owed - The more loans or credit cards you have that are maxed out, the lower your score will be. Try to keep your credit card balances at 25% or less of your limits.
- Length of Credit History - The longer your credit history, the higher your credit rating.
- New Credit - The more times you've applied for credit cards or loans, the more inquiries will show up on your credit report. A higher number of inquiries may indicate that you're struggling financially or may have a lot of debt (even if you never used the cards or received the loan).
- Types of Credit Used - Installment debt, such as an auto loan, is looked upon more favorably than revolving (credit card) debt. You also get points for your ability to successfully manage multiple types of debt.