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12 ways to safeguard your credit score
If you have a great credit, it’s much easier to safeguard your credit score now than to do damage control later.
If you have a good or excellent credit score, it’s likely the result of years of responsible financial behavior and smart credit usage.
There are tremendous advantages to having a high score, such as qualifying for the lowest interest rates and the best credit cards.
You also have the ability to borrow money for practically whatever you need.
FICO factors are based on the following:
- Amounts owed-30%
- Payment history-35%
- Length of credit history-15%
- Credit mix-10%
- New credit-10%
When you have good credit, it’s very important to your overall financial health to protect it. Here are twelve things you should be doing to make sure your great credit score stays that way.
1.Only apply for new credit when you need it
Applying for new credit affects two of the FICO score categories in a negative way.
Ten percent of your score is made up of “new credit,” which takes into account the number of times your credit was checked by lenders (inquiries), as well as how many of your accounts are new.
Another 15% of your score is made up of the length of your credit history.
Among other things, this category takes into account the average age of your credit accounts and the average drops when you add a new account into the mix.
2.Don’t be a cosigner
Be very careful about cosigning a loan for someone else, even for your spouse or kids.
If they miss a payment or can no longer pay, it will show up on your credit report and can devastate your credit score.
As a general rule of thumb, don’t cosign anything for anyone unless you are willing and able to take on the payment yourself if you have to.
3.Keep a list of your information
What would you do if your wallet got lost or stolen with all of your credit cards?
Sure, you can try to look up all of your accounts online and find the contact information but it may take a while and many sites won’t display your actual card number.
It’s usually a good idea to keep a paper list of all of your card numbers, expiration dates, and contact phone numbers available.
This way, if your cards are lost or stolen, you can cancel the accounts as quickly as possible.
Just remember to keep the list in a safe place.
4. Maybe you should keep your “starter cards” open
Generally, “starter cards,” or cards designed for people without a credit history, come with relatively high interest rates and fees, low limits, and don’t offer much in the way of rewards.
When your credit is built up, it can be very tempting to close them.
However, it may be a better idea to keep them open and simply not use them.
It was already mentioned that 15% of your score comes from the length of your credit history, so by keeping your oldest account open, you’ll help this part of your score.
Also, a big part of your score is your credit card debt relative to your total available credit.
By closing an account, you will reduce your total available credit and raise your utilization ratio, which can hurt your score.
5.Check your accounts, even if you don’t use them
Speaking of credit cards you don’t use, make sure you still check all your accounts every so often.
Ensure that there aren’t charges like annual fees on there and that no one is fraudulently using your card.
Ruining your credit score because you didn’t realize you owed an annual fee is a silly reason for your credit score to drop.
6.Be careful with your personal information
It goes without saying that you need to be very careful when giving out information like your Social Security number, birth dates, or your credit card numbers.
In addition, make sure you don’t leave any paperwork with this information on it where a thief could potentially find it, including in your garbage.
Investing in a paper shredder shouldn’t cost more than $30 or so for a basic model and it could save your identity from being stolen.
7. Keep an eye on it
Perhaps the best way to protect your credit is to watch it.
You don’t need to check it every day but a credit monitoring service can be an excellent use of $20 or so per month.
Any service that allows you to check your Equifax, Experian, and TransUnion credit reports is a good investment.
Checking your credit report once doesn’t have to cost you a dime.
Under Federal law, you’re entitled to one free copy of your credit report from each credit bureau once per year.
8.Never pay late, avoid steep rates
This is the single biggest factor in calculating a score and it is one of the easiest to control.
Most people do not know it but late payments can stay on your record for as long as some bankruptcies.
It could take seven years for the damage to be undone.
This is a big deal since your payment history makes up a shocking 35 percent of your FICO credit score.
Plus, if you pay late, your card can be hit with a 28 percent penalty interest rate, in addition to huge late fees.
9.Do not play chicken with your credit limit
The second most important FICO factor is how much you owe compared to how much credit you have available.
The best thing you can do is to avoid maxing out your credit lines.
If your balance is high, a lender may see you as a higher risk.
Experts recommend that you use no more than 30 percent of your total credit limit.
But you may do well to follow the example of people with higher scores and use less than 10 percent.
10.Build history for a stellar score
A long, healthy relationship with your credit cards boosts your score and establishes reliability with potential lenders.
Once you pay off your debt, however, you may be tempted to cancel your accounts altogether.
But to keep your credit score glowing, experts suggest that your use your card once or twice a month and pay it off immediately.
11. Pay in full, earn free loans every month
To bump up your score, your need to use all your credit lines wisely.
One smart move is to pay off the entire balance each month, instead of making just the minimum payment.
Not only will you save money by avoiding those lofty interest rates but it’s like getting a short-term loan with zero percent interest.
12.Limit new cards to score great credit
Be cautious about opening multiple accounts in a short period of time.
Whenever you apply for a new card, the credit company sends out an inquiry which will ding your score.
People with six or more inquiries on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries.
That‘s an important detail in the eye of potential lenders.
New credit card offers can be tempting, especially store cards that offer appealing discounts. But before you apply, make sure that you’re not just trying to get the deal of the day.
Is this statement true or false: Your credit score only affects your ability to open a line of credit?
False! Getting the loan is only half of it. Since your credit report reflects how you handled available credit in the past, lenders and insurance companies use it to determine the interest rate they offer.
That means a low credit score could force you to pay top dollar every time you take out a loan, apply for credit or insure your belongings.
However, people who take the twelve steps outline above can boost their credit and bag huge savings.