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Your credit score matters a lot. It may affect your mortgage rates, credit card approvals, apartment requests, or even your job application.According to Equifax, credit scores from 670 to 739 are considered good; 740 to 799 are considered very good; and 800+ are considered excellent.
If you’re nowhere close, don’t worry, read on for your roadmap to good credit. If your score is already in the 700s or 800s, you should also take steps to avoid unnecessary drops, since a good credit score can be as hard to maintain as it is to get.
Table of contents
- 1. Always pay bills on time
- 2. Maintain a low credit utilization ratio
- 3. Monitor your credit and watch out for identity theft
- 4. Apply for new credit only as needed
- 5. Think twice before closing an old account
1. Always pay bills on time
Your payment history is the most heavily weighted factor in your credit score. One way to make sure your payments are on time is to set up automatic payments, or set up calendar reminders. Note that the on-time payment habit should involve all your bills, including utilities, rent and cell phone service.
What if you were late on a payment several years ago? Relax. The impact of late or missed payments on your credit score decreases over time. Most negative records have little impact on your score after two years. So just be patient and keep making timely payments.
2. Maintain a low credit utilization ratio
The percentage of your credit limits you’re using is called your credit utilization. For example, if you have a limit of $5,000 and you’ve used $1,000 of that, your credit utilization is 20%.
Keeping a low credit utilization ratio will help you maintain a good credit score or even improve your score, as it shows you’re using your credit responsibly. The Consumer Financial Protection Bureau recommend using less than 30% of your limit on any card if possible (and lower is better).
On the other hand, you can also ask for higher credit limits if your income has gone up. The higher your overall available credit limit, the lower your credit utilization rate.
3. Monitor your credit and watch out for identity theft
1 in 4 Americans have reported being victims of identity theft. If someone opens new bank accounts/credit cards, takes out loans or even commits fraud under your name, your credit score can be significantly affected. It takes years to build up a high credit score, but an identity thief can ruin everything.
Unfortunately, identity theft usually happens in silence. By the time you notice something strange, the damage has already been done. That’s why you need to monitor your credit and regularly check your credit reports.
Check your credit reports regularly
By regularly monitoring your credit report and credit score, you can stay on top of your credit situation and take action if there’re any early signs of identity theft to maintain a good credit score.
You’re entitled to a free copy of your credit reports every 12 months from each of the three credit bureaus (Equifax, Experian, and TransUnion) by visiting annualcreditreport.com. If you prefer monthly 3-bureau credit reports & scores, you can sign up for IdentityIQ, which offers 7-day trial for $1.
1. Make sure to review your credit report carefully to ensure that all of the information on it is accurate and up-to-date. Note that even small mistakes (e.g. mistyped address) can affect your score.
2. Look for errors or signs of fraud: Check your credit report for errors or signs of fraud, such as accounts that you didn’t open or unauthorized charges on your accounts. If you find any errors or signs of fraud, you need to dispute errors with the credit reporting agencies. You can also report identity theft at IdentityTheft.gov, which is part of the Federal Trade Commission (FTC).
3. Monitor your credit score: Your credit score is a numerical representation of your creditworthiness, and it is based on the information in your credit report. Make sure to monitor your credit score regularly to see if it is improving or declining.
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Actively monitoring your credit may sound exhausting and time-consuming. If you want to skip the hassle and get comprehensive protection against potential threats, you may consider signing up for an all-in-one credit monitoring & identity protection service. These services can do all the protection work for you automatically, from monitoring, alert to recovery (if necessary):
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- Up to $1,000,000 identity theft insurance
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4. Apply for new credit only as needed
Applying for new credit and loans can impact your score, since lenders will do a “hard inquiry” on your credit each time you apply. Too many hard inquiries in a short period of time may indicate that you’re taking on more debt than you can handle.
That doesn’t mean you should be afraid of applying for new debt though. Just make sure you don’t open too many credit cards over a short amount of time. And as long as you continue to demonstrate that you’re a responsible borrower who makes on-time payments, your score should stay strong over time.
If you have no idea how your financial choices will impact your credit score, you can sign up for IdentityForce. It has a credit improvement simulator which can also help raise your credit score. It also enables you to check your credit scores with all three bureaus anytime.
5. Think twice before closing an old account
The length of credit history is another factor in your credit score. The longer you show good credit habits, the better it could be for your score. Generally speaking, having older accounts on your report can boost your score.
So if you have a credit card with a zero balance that you barely use, think twice before you close it. Closing a credit card account can reduce the length of your credit history depending on the age of the account. Plus, closing it would decrease your available credit and increase your credit utilization. And both factors could lower your overall credit score.
Hope you find this post helpful. If you have any questions or suggestions, please feel free to leave a comment below.