Maintaining good credit is essential to your financial well being. If you ever intend to purchase a home or rent an apartment, or even get a new job, expect to have your credit pulled. The contents of your credit report, along with your FICO score, make all the difference between being approved or denied.
Many people believe that in order to have a high credit score, a high income is necessary. Of course, many lenders do consider your income in making credit decisions. But your income is not considered at all in the calculation of your actual FICO score. The following tips represent strategies that allow many people to obtain and maintain above average credit, whether they earn generous salaries or not.
Learn more on how to improve your credit score from the top 15 credit experts here.
1. They Pay Their Bills Before They Are Due
Do you stretch your payments out to the last possible moment – and sometimes beyond? This is no way to raise your credit scores. People with above-average credit scores not only NEVER pay bills late, and often exceed their minimum monthly payment.
2. They Have Credit Cards – and Use Them
You may have heard or read that credit card debt is “bad debt.” “Good debt” then are student loans and mortgages, which can be considered investments. It is true that carrying large balances on credit cards is bad, especially if those credit cards carry hefty interest rates. But using credit cards is one of the best ways to improve your overall credit profile.
To stay on the “good” side of debt, keep balances low and maintain a consistent record of on-time payments.
Read about the types of debt that can actually help you in this post.
3. They Don’t Close Accounts in Good Standing
According to the MyFico website, the length of time that you have held credit accounts for 15 percent of your FICO score. So, that credit card you’ve had since college and kept in good standing? By all means, hang onto it. Even if it only has a credit limit of $300, you could, and should still use it for small purchases.
4. They Carry Little or No (Bad) Debt
People with above-average credit scores don’t max out their credit cards or blow wads of cash on cars that spend more time in the shop than on the road. Because they have good credit, people with sound financial profiles find it easier to afford great vacations or other enjoyable activities. But unlike people who have poor credit, people with above-average credit scores pay for those splurges with cash whenever possible.
5. They Monitor Their Credit Reports
There are two good reasons to keep tabs on what credit reporting agencies have included in your credit report: fraud and errors. Identity theft can ruin your credit before you even know there is a problem, and cleaning up the mess can take years. Errors in your credit report can also wreak havoc on your financial stability.
Have a common name like John Smith or Mary Jones? Be extra vigilant about checking your report for errors.
6. They Use Different Types of Credit
The MyFico website states that the variety of credit types included in a credit profile accounts for 10 percent of a person’s FICO score. So if you want to raise your credit score, consider taking a small loan from your bank along with initiating another type of credit. Of course, it is essential to maintain consistent on-time payments for those accounts as well.
7. They Make Derogatory Items Go Away
In the unlikely event that they miss a payment due to oversight or some unavoidable circumstance such as a job loss, people with above average credit scores are proactive. They contact their creditors and request a courtesy removal of derogatory items, and because they are good customers, creditors are often likely to grant their requests. People with above-average credit scores make other derogatory items go away the old fashioned way – by paying them off.
8. They’re Wary of Hard Credit Inquiries
Every time a creditor or lender makes a “hard” inquiry into your credit profile, you lose approximately five points from your FICO score. Five points may not seem like much, but multiplied by half a dozen inquiries, 700 FICO score sinks to 670.
Racking up that many points is easier than you’d think, say, when comparing credit card rates for bad credit. Fortunately, it’s possible to reduce the hit on your credit score by concentrating inquiries related to a single purchase to a short period of time, say two weeks. In such cases, the inquires are grouped together and counted as a single inquiry, with only a single reduction of your credit score.
9. They Are Listed as Authorized Users on Someone Else’s Account(s)
If your own credit is so-so or nonexistent, an easy way to get an instant boost is to be added as an authorized user for an account held by someone with good credit. Many students have taken advantage of their parents’ established credit histories to qualify for loans on much better terms than they could manage on their own. On the downside, if the main account holder goes AWOL on the account, your credit will tank along with theirs.
Don’t Expect Instant Results
While some of the strategies above can produce significant increases in your credit score, you shouldn’t expect instant results. Also, in the case of #9, you may put your relationship at risk if you default or otherwise damage someone else’s credit. If you have so-so or even poor credit, you should expect to spend one year or longer on your efforts to improve your credit. And once you get it up to par, you’ll need to keep up the good work to maintain your sound financial footing.
Audrey Henderson is a Chicagoland-based writer and researcher. She holds advanced degrees in sociology and law from Northwestern University. Her writing specialties are sustainable development in the built environment, policy related to arts and popular culture, socially and ecologically responsible travel, civic tech and personal finance.