In discussing credit with people daily I hear all kinds of misconceptions when it comes to what to do or what not do with credit. The part that is most concerning to me is all these tips are not things people are just making up, but things that people have told them would help. While there are many things you can do to improve your score, I wanted to give you some quick and simple tips that anyone can follow.
- Pay attention to your credit card balances– Most people don’t understand how important the balance of your credit card really is. In fact, this simple math exercise is responsible for almost 30% of your total credit score, so don’t overlook it. In a nutshell, the score wants to know what percent of your credit card balances you are currently using. If your card has a limit of $1,000 and your balance is $500, that would mean you are using 50% of your credit. Keeping your balances low is very important to the overall strength of your score. Ideally you want to be under 30% of your limit and it is even better if you can be under 10% of your limit. Many people can do this, they just don’t understand the importance or have been given wrong advice about carrying balances.
- Eliminate multiple balances– Sticking with credit card talk, another factor that many miss is it’s better to only have a balance on one or two cards. A lot of people don’t have high balances but they have several cards with small balances. If this is what you do, payoff all of those small cards. Your score is better with only having a balance on one or two cards, even if its higher than it is to have several cards with small balances.
- Pay on time– I know it sounds simple but any list of credit tips must have it. Payment history is 35% of your score. One 30-day late payment can cause all kinds of trouble. I see people all the time that are so concerned with saving for a down payment, they end up missing a payment and the result is the score drops dramatically and the down payment is irrelevant because their score is not high enough to qualify for a loan. Always make payments on time.
- Understand inquires– when you’re looking for a mortgage, car loan or student loan special rules apply. When you apply for one of these accounts the first thing that happens is the points that you would lose for that inquiry do not come off your score until 30 days after the credit is pulled. The second and more important part is you can go to as many banks or lenders as you want within a 45-day window from the first inquiry and all of those only count as one inquiry. The lesson…if you are going to compare lenders or programs do it within 45 days (at maximum) of each other. I can’t tell you how many people come to me complaining that a car dealer ruined their credit score by shot gunning their credit report to many lenders! If one inquiry hurts your score the same as 30 inquiries, take the 30 so you have multiple banks offering you terms so you can see the best option.
- Leave old debt alone– many people falsely believe that old accounts with a good payment history should be removed from their credit report. If you have good, old accounts you want them on your report! Don’t try to get rid of them. Good history is something you want to keep as long as you can. Negative accounts are a different story, but good accounts will always help!
Hopefully this list can provide you with some simple and easy tips for your credit. As always if you have additional questions I am always happy to help.