I have often wondered how to keep a good credit score so that I do not run into issues later down the road. Depending on your current financial situation, this may be a fairly simple task or one that could take some considerable time. However, it is entirely feasible if you pay close attention to what you actually do with your money.
Having a low credit score can close many financial doors for you. Being approved for a loan may be difficult or even downright impossible if your score is low. Lenders are obviously lending you money and with that, comes a risk to them. Would you want to lend money to someone who has proven that they cannot or will not pay it back?
If you are fortunate enough to be approved for a loan despite a low credit score, expect a high-interest rate and a required large down payment. You are a high-risk borrower and the lenders must inevitably protect themselves against such individuals. Requiring a large down payment upfront and higher interest rates means that they will be guaranteed to recoup some of the money if you default on the loan.
Even getting a cell phone contract may prove to be an arduous task with a low credit score. Most cell phone providers will do a credit check before approving a contract. Again, they are taking a risk with everyone and want to make sure they have reliable, low-risk customers.
Not only does it become difficult to be approved for a variety of loans, your credit score can also cause some tension and stress within your personal relationships. For example, if you and your significant other with to apply for a mortgage, the lender will be looking at both of your credit profiles. Yours may be excellent and theirs is not so wonderful. As a result, you may be forced to pay a higher interest rate or even be denied altogether.
Therefore, it is easy to come to the conclusion that you indeed want and obviously NEED a good credit score. But how to keep a good credit score?
#1. Pay Your Bills on Time
Yes indeed, even paying your phone, cable, internet, or power bills late can lower your credit rating. Therefore, pay them on time. It is possible to set up direct billing so that the payments come directly out of your bank account. You just need to remember to have sufficient funds in your account to cover the bills.
In addition, paying your bills on time also gets rid of all those additional interest fees that will be tacked on if you are late and no one wants to pay extra for anything.
#2. Get a Credit Card
Getting a credit card may sound counter-intuitive. How can getting a credit card help to increase my credit score? Again, if you are at least making the minimum payment on your credit card, lenders see this as a positive action. Even better though, pay off your credit card in its entirety each and every month to avoid all interest charges.
This demonstrates to the lenders that you are financially responsible to handle “borrowed” money. Credit cards are necessary for almost everything these days but be careful to avoid using it recklessly and make sure you know how to take control of your personal finances.
#3. Pay Your Credit Card Bills on Time
You may think that as long as you are making some sort of payment on the card, you are being financially responsible. However, paying it on time is just as important to effectively know how to keep a good credit score. It helps to build a solid credit history and demonstrates to the lenders that you can be trusted with their money.
#4. Have Only 1 to 2 Credit Cards
It is important to limit yourself to one to two credit cards in total. This is also including those that many retailers will offer you. In actuality, the retail credit cards can be extremely dangerous as they typically have a far higher interest rate than those from credit card companies or your bank.
I, personally, have never had one from a store, as I believe it would give me the false sense of having more money than I actually have. It may be enticing to get that extra 10% of your purchase or start collecting store “points” but it is not worth it in the end.
With only two credit cards, I know exactly how much money I have spent and therefore, how much I owe each month.
#5. Avoid Drawing Cash Advances on Your Cards
Use a line of credit from a financial institution if you must have access to cash. The rate of interest is considerably lower than that on a credit card. Often if you are a good customer, the bank may offer you “specials” or lower interest rates for a period of time.
#6. Establish Your Own Individual Credit Identity
You get into a relationship and the desire to combine everything or to allow one individual to hold all the credit is high. However, this can cause a multitude of issues if the relationship fails. If one person has all the credit cards in his/her name, they are the only ones left with a credit identity. This means that the other person has zero credit history and is left struggling to now be approved for loans, a phone contract, even a credit card.
Of course, no one goes into a relationship thinking it will end but the reality is, you must protect yourself and think about your own future and learn how to keep a good credit score for yourself. Discuss these types of things in your relationship as often because financial issues often lead to divorce.
Meeting your financial goals is realistic if you use your credit responsibly in conjunction with regular saving, investing and learning how to be free from debt.
Speak to a financial advisor at your financial institution to assist you in how to keep a good credit score and achieving those financial goals.