So you’re happy with your credit score. Whether you’ve always been a careful and strategic financial planner or you’ve made some changes over the past few years, you are determined not to let it slip. No matter where you’re coming from, there are a few key points that everyone should consider when working to keep their credit score nice and high.
First and foremost, make all of your bill payments on time. It seems almost too obvious to state, but on-time payment plays such a large role in determining your credit score that even one late payment can dent your score. Whenever possible, set yourself up for success by using a system of reminders and/or automatic payments to limit human error and forgetfulness.
Another key point is to keep those credit card balances low. Common wisdom dictates that it’s typically a good idea to keep your debt at around 20-30% of the credit card limit, even if you’re prepared to pay the entire total in full when you receive your bill. It just looks better to the credit bureaus.
Applying for loans or credit cards will automatically ding your credit score at least a little, not to mention that if you do receive the credit, your credit history will get that much younger and weaker. Also, if you apply for a lot of credit in a short time period, it will look like you are in a weak financial position (and more likely to default on future loans).
Don’t necessarily cancel old credit card accounts. You want to have some longevity to your credit history, so if you’ve been using one or more credit cards (responsibly!) for an extended period of time, consider ways to keep them active (even minimally) in order to help that part of your credit score. Closed credit cards are not immediately wiped off of your credit history, but eventually they are deleted and you might not want to lose that credibility you earned with old cards. Some people will also close most of their accounts and switch all of the debt to one main card. While this may be easier for you to manage, don’t forget about the 30% credit card limit target for each card!
Stay informed of your credit score. It is so important to make regular checks on your score, even if you feel you’re doing everything right. Mistakes are common in calculating scores, and of course there is always the threat of undetected identity theft. You will not be penalized on your score if you request it straight from the agency, as opposed to going through a 3rd party.
It pays to be financially prepared for an emergency or unexpected change in your life. Some folks will set a credit limit of their own on their cards so that they always have at least a certain amount of money available to them. Others will simply get a savings account going and keep a certain number of months’ worth of living expenses squirreled away. A combination of the two certainly wouldn’t hurt, so that should the unthinkable come to pass, you won’t be pressed into taking out more credit than you can handle (thereby hurting your credit score.)
Finally, if you run into some tough times and your financial life seems to be getting out of hand, be sure to get contact with your lenders (the earlier the better). They will most likely be amenable to restructuring the terms of your payment, assuming that you are up front and proactive in your approach. If you’ve really gotten in over your head, it may be worth it to seek the help of a legitimate credit counselor.