As the economy begins to recover and we try to right ourselves financially,
banks are looking more closely at the credit history of borrowers. In the
not-so-distant past, a few blemishes on a credit report could be overlooked,
but now a few blemishes could mean the difference between loan approval and
loan denial. Do you know the steps to take to keep your credit on the straight
and narrow?
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Pay on time. Paying your bills on time is the easiest way to maintain a
high credit score. Lenders look at payment history, which is detailed on the
credit report, to see if there are any red flags. They know that if you have
been late in the past, you are more likely to be late in the future and you may
have a higher interest rate or be denied approval because of it.
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Don’t close old accounts, even if you no longer use them. Although this
may seem contrary to logic, part of your credit score is based on how long you
have had credit. When you close an account, it will eventually drop off your
credit report, which, if it is an older account, will lessen your credit
history.
Additionally, when you close an account, it decreases the amount of your total
available credit. About one third of your credit score is factored on the
amount of debt owed compared with your credit limit.
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Pay down high balances and don’t max out your cards. Lenders don’t want
to see someone with little to no available credit because there is so much
unpaid debt on their cards. If you owe more than 30% of what is available to
you, your credit score will likely go down.
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Stay away from opening unnecessary accounts. We have all been there – a
store clerk offers us a 10% discount on our purchase if we just sign up for the
store’s credit card. While saving some money is nice, doing so in this way can
also be damaging to your credit. By opening unnecessary accounts, you are
lowering the average age of your credit history and giving yourself more
opportunity to go into debt, which impacts your credit score.
Maintaining good credit will benefit you in many ways. Interest rates and loan
approvals are based on the information in your credit report. It is important
to know the proper steps to take to keep the best score possible.
