Tips on How to Maintain a Good Credit Report

Credit represents the likelihood that an individual will repay loans and pay bills on time, as well as the risk factor involved with approving that person for a loan or new line of credit. If you have bad credit you’re less likely to receive approval for loans and other services, and if approved, you must face the reality of paying very high interest rates. Good credit scores are calculated from a transaction record known as a credit report that is built and tracked over time by credit bureaus. Different spending habits can make or break your credit report, so here are some healthy practices that will keep your credit in great shape.

Make timely payments

Since 35% of your credit score is determined by your payment history, it pays to pay. Not only does consistent tardiness result in the accumulation of late fees, it also makes you look like a broken record singing the same old “lateness lament” to credit agencies. Maintain your good standing by making a point to pay statements on time, if not earlier.

Don’t skip out on payments

The only thing that’s actually worse than making late payments is not paying at all. Consequences of missed payments include: having your account charged off, having your account sent to collections to be wrangled with by third-party debt collectors, or being issued a judgment. All but the latter are pretty common penalties. While judgments are somewhat difficult to process, they place a big, ugly stamp on your credit score serving as a permanent indication of your non-compliance with pay terms. Keep records of previously paid bills, make sure you have sufficient funds for payment, and verify that charges are correct to ensure payments are always made.

Keep watch over your credit report

Get into the habit of “spying” on your credit a bit more than you’re used to. Malicious identity thieves are waiting in the wings to snatch up your credit information and run up your monthly bills, so sign up for a credit monitoring service to track reports compiled by the major credit reporting agencies. You’ll be given the option to “lock” credit report access to keep out prying eyes, receive alerts when changes are executed, check your score whenever you want and observe suspicious activity, and even opt for identity theft insurance in preparation for worst-case scenarios.

If old credit cards are collecting dust, don’t trash them

Closing out old credit cards may seem like the logical choice; however, this can actually work against you, even if you’re trying to bury a bad record. The thing about credit is that it takes a considerable length of time to build, and no matter how good or bad, it is never wise to erase the proof that you built credit in the first place. Rather than starting from scratch, work on repairing those botched scores even if it means consulting a credit counselor.

Avoid sky-high balances

A weighty 30% of your credit score is based on credit utilization, which is the percentage of your credit limit that is used each month. Obviously one must utilize some purchasing power to establish credit at all, but excessive splurges resulting in high utilization paint you as risky in the eyes of the credit bureaus. Keep monthly purchases down to small, manageable chunks that can be paid off readily, and don’t rely on credit cards as a steady crutch for making large purchases: over-the-limit balances reflect especially poorly.

Seek alternatives to bankruptcy

Filing bankruptcy can completely obliterate your credit score, so seek alternatives like credit counseling and payment plans if you envision it cropping up in your future. If you’re going to play the credit game, start off prepared. Keep a stash of emergency savings, devise a plan for payments that falls within your means, and have an exit strategy. Ultimately, always refrain from biting off more than you can chew and you’ll leave yourself an out so that you don’t wind up at a dead end.

Don’t get “application happy” just yet

With the advantage of good credit comes the thrill of likely application acceptance. Get too cocky, however, and watch your credit score plummet as quickly as you applied for all that shiny new plastic. There’s no simpler way to ruin your credit than by getting greedy: limit opening new lines of credit to an as-needed basis to stay on the safe side.