How to Maintain a Good Credit Score
Fortunately, the same financial discipline and organization that helped you achieve a good credit score in the first place will also help you maintain your good standing. It’ll also help you to understand how credit scores are calculated, so you know what consequences certain actions will have.
Keep reading to ensure that you maintain your credit score, so that you can continue enjoying the benefits of having favorable credit.
Understand the Credit Score Calculation
According to Creditcards.com, the credit bureaus use five key variables to calculate your personal credit score. Those five variables are your payment history, credit age, mix of credit, recent credit, and level of debt.
The variables that carry the lowest weight are new credit (10 percent), credit mix (10 percent), and length of credit history (15 percent). Payment history and level of debt make up 35 percent and 30 percent, respectively.
Business credit bureaus don’t use a standard calculation to decide on your business credit score. Still, the principles of maintaining a good personal credit score hold true for business credit scores as well.
Make Payments, Keep Debt Levels Low
Given that payment history and level of debt make up so much of your credit score, you should be sure to make payments on time and keep your debt level as low as possible. To ensure you make payments on time and in full, organization and financial discipline are key. To achieve this, enroll in auto-payments and make sure you’re not spending more than you can afford.
In addition, you should have an emergency fund to make up for short-term cash needs. Things happen, and there’s often no way to anticipate them. If you’re forced to use a credit card to bridge the gap after an unexpected expense, you could be put in a difficult position. Also, an emergency fund helps you guarantee that you don’t get stuck paying interest on a massive credit card bill, which will damage your credit score.
Remember that your level of debt is not just calculated based on your credit card balances. Installment loans like student and auto loans as well as mortgages should be kept to a minimum to maintain a good credit score.
Be Careful Opening and Closing Accounts
The longer you have an account open and in good standing, the better it is for your credit score. That means you want to be mindful any time you’re opening a new account or closing an old one. Opening a new account will lower the average age of your accounts, as will closing an older one. Either one could have a negative impact on your credit score.
If you’re thinking of closing an older account, consider putting a small, automatic payment, like a subscription, on that account. That way, you maintain the old account and improve your “credit age.”
Pay Attention to the Details
Other factors, like mix of credit and recent credit, are less important than making payments on time and keeping debt low, but they’re still worth paying attention to. Having a mix of credit, like a loan, credit card, and a strong rental history can improve your credit score.
Of course, you shouldn’t take out a loan just for the sake of building credit. In fact, opening several accounts in a short amount of time may negatively impact your credit score.
Additionally, remember that mistakes get made, so don’t assume that credit statements and reports are completely accurate all the time. Take the time to review your monthly statements and periodically check your credit report for errors. If you find something, say something.
You’ve probably heard the oft-repeated phrase, “past performance is no guarantee of future results.” That’s exactly how credit bureaus and lenders look at your credit score. You could have a perfect history but that can quickly change with a few missteps. To ensure it doesn’t, make sure you understand how your financial decisions today will affect your credit score moving forward.
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