The majority of us use some type of credit regularly, either for major purchases or for stretching our financial resources, so improving your credit score is a great goal to have. A good credit score gets you lower interest rates and increases your purchasing choices. Individuals that enjoy the best credit scores are those who practice excellent credit habits. We can all learn these financially sound habits and boost our own credit scores.
Excellent Habit #1: Pay on Time
Timely paymentis number one on the list of excellent credit habits. People with stellar credit scores make payments on time regularly. Everyone, no matter how many lenders you owe, will see a great deal of benefit by making this a regular financial management routine. Your credit score will continue to improve over time, but miss one or two payments and you’ll see it drop dramatically. Do everything possible to keep negative reports from showing up on your report by making payments on time.
Excellent Habit #2: Low Overall Debt
Those individuals with great credit maintain low overall debt. While they may have the ability to borrow more, they understand this rule of thumb well and take steps to keep their debt to income ratio as low as possible. Being proactive about credit and keeping debt to a minimum are excellent credit habits. Keep a watchful eye on your credit score by taking advantage of the free reports from the credit bureaus throughout the year. Make it a top priority to pay credit card balances in full each month. It requires a great deal of discipline, but it will be worth it in the long term as you see your credit score continue to increase.
Excellent Habit #3: Low Debt Utilization
The third step to take in developing excellent credit habits is low debt utilization. Consumers with the top credit scores of 800 or higher, typically utilize only about five percent of the amount available to them. Conversely, those with lower scores are often close to or completely maxed out on their credit cards. Develop the habit of only charging amounts you can pay off at the end of the month. This demonstrates that you are a responsible borrower to lenders and your credit score will really look great. Practice this habit with loans as well- it may be tempting to borrow more than you actually need, but make sure you have the monthly finances available to easily make the payments.
Excellent Habit #4: Multiple Lines of Credit
The use of credit cards is one of the easiest methods to establish a credit history, but that doesn’t mean you have to always have a balance carried on the card. Those with excellent credit understand that owning more than one card is smart, as long as you pay off the balance every month. Build your pristine credit rating without paying interest on credit cards. Our list of excellent credit habits also includes working to stay below 30% of your limit. If you do have a balance, you don’t have to suffer from a low credit score – just be sure to pay over the minimum payment every month and pay on time. This will prevent a balance from negatively impacting your score.
Excellent Habit #5: Keep Accounts Open
The majority of consumers that have excellent credit ratings do not close out old accounts. Older accounts demonstrate how “old” you are credit-wise and prove your long-term history of financial responsibility. Your credit looks better when you have older accounts that have remained open because you actually have more available credit. Beware though- just because you have an open account does not mean you should have a ton of debt. Make use of them on occasion and pay any charges in full immediately and on time. When a history of responsible and established borrowing is highlighted on your report, it tells lenders you practice excellent credit habits and have done so for a period of time.
Excellent Habit #6: Know Where You Stand
The consumers who have worked to achieve a pristine credit score know that monitoring their information is important. They can tell you at any moment what their credit score is and how much they owe to any lender. This is because one of their excellent credit habits is staying informed about where they stand with their credit at all times. Keeping tabs on your credit is remarkably easy. Free yearly credit reports are available through three major credit bureaus. Simply request your individual credit report three times a year, alternating between the bureaus each time. You will be able to review your credit report throughout the year. Watch for errors and take immediate action to correct and resolve them. Look for indications that you may be the victim of an identity thief. Monitor both your credit report and your FICO score and stay informed of your card balances.