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Wednesday, February 2, 2011

How to keep your good credit score

How to keep your good credit score
After working to get a credit score to its best numerical value i.e. between 735-850, keeping it there may also require some maintenance. Keeping a credit score high shouldn't be a challenge so long as one continues the techniques and methods one used to get the credit score high in the first place. There are also a few ways to prevent a credit score from lowering that are not related to strong management of personal finances.
New credit and types of credit account for 20% of credit score
Credit history comprises 35% of credit score

Maintain less than 40 percent usage of credit


Individual debt management decisions also affect credit score. Moreover, the lower the percentage of debt one uses, the more debt management credibility one may achieve in the form of a high and maintained credit score. If one has a high credit score then uses the maximum debt for all one's credit the affect could be lower credit score. Paying as much of one's monthly credit card bill as possible not only helps maintain ideal credit levels, but also indicates a willingness to pay down debt to creditors.

The following video explains how to maintain a good credit score by auto paying bills and by paying off credit card transactions in full each month:

Stay with financial institutions and creditors


How often a debtor switches and closes financial institutions indicates a potential strike against credit worthiness. Sticking with financial institutions and lenders demonstrates debtor may be less likely to engage in risky financial behavior based on statistical correlations and data. So if one must close an account, finding a new financial institution one can feel comfortable banking with over the long term can be a healthy choice for one's credit score.

Avoid frequent credit checks


A credit check from a lender once in a while shouldn't hurt a credit rating however frequent credit checks can indicate a sudden need and application for credit which could adversely affect a credit rating and/or credibility. By spacing out car loan, credit card, mortgage refinance, and individual business loan applications, the chances multiple credit checks will lower a credit score go down. Additionally, avoiding too many comparison related inquiries can also be helpful. For example, if shopping for a credit card one may require pre-approval, too many credit card inquiries could have a negative affect even if one just wants one credit card.

Keep good financial habits


The same financial habits that enabled a debtor to achieve a high credit score must be continued in order to keep the credit score high. The typical practices that contribute to strong credit scores are listed below:

• Budgeting
• Debt Management
• Pay bills on time
• Reasonable Debt to Income ratios
• Credit History

The above methods require ongoing fiscal discipline, know how, financial record keeping and organization skills. Maintaining a cost of living and standard of living in proportion to one's income level is also a good idea in avoiding an over accumulation of debt. Making extra mortgage payments and paying taxes on time can also have an influence on financial credibility.

Protect financial information and identity


Lowering the risk of identity theft can also assure a credit score is less likely to be compromised. Shredding old and unneeded financial documents, obtaining credit freezes during periods of loan inactivity, reviewing credit reports once or twice a year, and removing one from marketing, and credit card distribution lists can all be helpful ways to protect identity. Other techniques include using license numbers instead of tax payer identification numbers at doctor's offices and other places where TIN's are not necessary, changing computer passwords often and using data encryption, firewalls and spyware protection on computers.

Avoid overdraft and bounced checks


Another way a credit score may be affected may be from writing checks that bounce or make use of overdraft protection. Bad checks are reported to credit agencies and although overdraft protection is technically a line of credit, it can incur financial penalties and may also be reported to credit agencies depending on the financial institutions practices.

Keeping a credit score high has several potential benefits including qualification for lower interest rates, higher loan qualification amounts and beneficial background screening for job applications that require good financial credibility and credit scores. Additionally, the satisfaction of knowing one has make a solid and consistent effort in maintaining a deserved credit score can be of personal benefit.

A high credit score can also be useful in unexpected times of low cash flow and when additional credit is required for large expenditures and/or investments. Whether it be personal or business related, be able to qualify for low interest credit and or loans an assist one in realizing one's dreams so long as they are well managed.

Image source: Phillip Newton