Four Credit Rules To Follow For Building Good Credit
Since our credit score impacts our life so much it makes sense we should have some rules to help manage our credit score and ensure that our borrowing and spending habits do not get to out of hand. When it comes to revolving credit and installment loans these simple guidelines will help ensure that your credit score not only remains intact but also improves.
One of the biggest factors for your credit score is your payment history. Your payment history with creditors is the single largest factor in your credit report. The better your payment history is the better your credit score will be. Just one late payment can cost you big time as far as your FICO score goes. Credit scoring is complicated, whats more the higher your credit score is the bigger the penalty is to your credit score with just one late payment, in fact it can lower your credit score as much as 90 to 110 points for someone with a FICO score of 780 to 800. Sometimes a credit will not report a slightly late bill say 10 days late but you do not want to take that risk. Not only can missed bills damage your credit but also your finances due to late payment fees and interest penalty annual percentage rates.
To avoid these problems you can set up auto payments for your expected bills. It may take awhile to get used to auto payments but it is worth doing to avoid a potential credit score mishap due to a late payment. For credit cards you want to make sure you at least meet the minimum payment each month. Installment loans the payments must be made in full each and every time. If you are the type who has trouble with payments you should avoid having credit cards and instead just focus on your installment loans and lines of credit.
You want to keep your credit credit utilization relatively low. Your credit utilization is how much of your available credit that you are using is. It is basically how high your credit limit is versus how much of that credit you are using is. The goal should be keeping your credit utilization down to 30% so if you have say a $5000 credit limit you want to use no more than $1500. When you use more credit than 30% of your available credit limit or ideally 25% of your available credit limit so you have a 5% cash cushion in case of a small emergency.
To keep your credit score intact you need to really check it, often. At the minimum you should be doing it once a year, but i recommend checking every month, especially since identity theft is running rampant in the country. Being proactive and catching any errors early on goes a long way towards keeping a good credit score. You also want to see how your credit is fairing based on your current habits and understand exactly what has risen or lowered your credit score and you can only do that when you monitor your credit report monthly.
Terms and conditions:
This would seem like a no brainier, bit you would be shocked at how many people apply for loans and credit cards yet never read the terms and conditions for the credit or loan product they are applying for. Not knowing the terms and conditions of your credit products is a recipe for disaster, you should always understand what rates will be charged and under what conditions, what fees will be applied and why and when they will come into effect. Always keep your terms and conditions handy along with any fine print associated with any credit product you have.
Doing the above will go a long way towards keeping your credit score intact and thriving well.