4 Steps to Keeping Your Credit Score in Check
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Neglecting your credit score is one of the biggest money mistakes that people make. It’s only when you try to borrow some money and realize that your credit score is in the gutter that you start to think about it. Unfortunately, the damage is already done by that point and it’s very hard to come back from. If you need to borrow money for emergencies, to buy a home or car, or even to start your own business in the future, you’re going to need a healthy credit score. That’s why you need to start planning for the future now and getting into good financial habits.
Not Using Credit
Your credit score is a measure of your financial responsibility. Which is why people often think that the best thing to do is refrain from borrowing money. Surely, managing your money well enough so that you don’t need to borrow any extra is the best way to prove that you’re financially responsible, isn’t it? You’d think so, but that’s not quite how it works.
If you haven’t used credit before, you won’t have a credit score at all which is always a bad thing in the eyes of lenders. That’s why you should start using credit, but using it sensibly.
First off, you need to pick a good credit card with interest rates that you can manage. Check out this list of the best credit cards by the Ascent to see what great deals are out there at the moment. Once you’ve picked a good credit card, you should start using it for small purchases like your weekly grocery shopping and then pay off the balance right away. That way, you can start building up a healthy credit score.
Using Too Much Credit
Using credit is important if you want to build up your score but you’ve got to be careful. If you’re using too much credit, it’ll give lenders the wrong impression. Whenever you take out a credit card, you have to go through a credit check. Each one will damage your credit score. It also gives lenders the wrong impression because it suggests that you’re borrowing a lot more than you actually are. You need to use credit, but don’t use it too much.
A good rule of thumb is to not use more than 30% of your credit line. And then always pay it off ASAP.
Maxing Out Credit Cards
When you’re spending money on credit cards to build up your score, you’ve got to be very careful. It’s tempting to just keep spending until you’re at your limit, but that’s going to hurt you in more ways than one. Firstly, it’s going to make it difficult to manage your finances, and secondly, it’s going to damage your credit score. When lenders look at your score, they’ll check your credit utilization ratio (the amount of available credit that you’re using). If that number is too high, it’ll raise red flags and you won’t be able to borrow any money.
Repair credit mistakes
Many people don’t know this, but there are many mistakes made on credit reports. To prevent your credit from having bad ratings, always check it once a year to make sure nothing is on there that isn’t legit. If you find anything questionable, you should immediately write to each credit bureau and request that the item be appealed.
Once the bureau gets this request, they have a certain amount of time to follow up with the creditor. If the creditor can’t prove that it’s a legitimate credit ding, they’re required to remove it from your credit report. I recommend doing this for every item on your report that’s negative, because you never know what can and cannot be proven. You could improve your credit rating tremendously by making sure your credit looks as good as possible.
Trying to manage your credit score is tricky, but if you avoid these mistakes, it’s possible.
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