How to Keep a Good Credit Score
Success is usually monitored by the amount of money you make yearly; however, when you have tons of money and bad credit, this could put a damper on things. For instance, if you have $10,000 and you want to buy a home, lenders are more likely not to extend you any money for a home if you have a low credit score. In this article, you will find the basic tips in raising and keeping your credit score higher.
What are lenders looking for in your credit report?
One of the main purposes for lenders looking at your credit report is to see your credit to debt ratio. To break it down for you, your credit to debt ratio is the amount of credit you are extended by a creditor to the amount of money currently on your credit cards. Basically, it is the amount of money you are in debt to your credit card companies. Example: If your total credit card limit is $5,000 and you have $4,000 presently on your card, you have an 80% credit to debt ratio. If you have multiple cards, then add all of your credit limits up and then add up the entire amount you owe. Divide your total limit into the amount of your debt. This will be current credit to debt ratio.
Most creditors want to see low credit to debt ratios. Ultimately lenders would like to see 40% or lower for your ratio.
Why am I worried about credit to debt ratio if I am paying my bills on time?
Always keeping your credit to debt ratio low will boost your credit score higher. In turn, if you have a high ratio this will lower your score. Using your credit cards wisely is a good way to help your credit score stay higher. This will give you the better finance rates for loans and additional credit cards. Now, paying your bills on time is also a key factor in helping your credit score, but that alone will not allow you to succeed in raising your credit score.
The best possible way for you to manage your credit to debt ratio is to only use your credit cards on purchases that you will be able to pay off completely when the monthly statement comes due. This doesn’t mean to go out and close some of your accounts, because that will lower your credit limit total and your credit to debt ratio could be higher at that point. Just be sure not to live outside of your means and budget wisely.
When should I use my credit cards?
The best time to use your credit cards is for simple purchases that you will make monthly, but you can pay off monthly. For instance, if you have one credit card, use it for your monthly cable bill. This is a bill that will always need paid and if you have cable, then you can pay the bill monthly. Dedicate that one card for the cable bill and pay your monthly credit card statement in full every month. This will help maintain your credit card balances as well as give you good rating in credit reporting.
Don’t be frivolous with your spending. Do not purchase items that you know you can’t pay for. This is a quick way to get into credit card debt. If you spend conscientiously and pay on time, your credit cards will stay in good standing.
5 Tips to help raise your credit score:
- Make sure your credit to debt ratio is low.
- Keep your credit cards open and in good standing.
- Pay off your balances.
- Don’t abuse your credit cards, use carefully.
- Manage your credit report and dispute any negative remarks yearly.
By using these tips you can be on the road to success. But remember, spending money carelessly will also keep you from saving money for a time you may need it. At that time, you may have to use one of your credit cards that you won’t be able to pay off. Budget carefully and know where your money is going.
Too many credit cards only draws your debt higher; thinking you only have to pay the minimum balance. In the long run, you are paying more for that cool new outfit then it's worth. Keep one or two or none. Save the money you want to spend. You may just feel better about that new guitar you have been eyeballing for months.
Credit is a terrible thing to waste. Know where you stand!