Your credit score is one of the most important numbers in your financial life, so it is important to protect it and make it as high as possible. If your credit score is at the upper end of the spectrum, you can expect the lowest interest rate when borrowing money or negotiating a new mortgage. If your score is at the other end of the scale, you may have trouble getting a loan at all. Even if you qualify for a loan, you can expect to pay the highest interest rates, and that will make paying back the money and getting ahead financially difficult.
If you want to boost your credit score and get it to the highest possible level, it is a good idea to look at the things people with the best scores have in common. Here are six money-smart habits that will improve your credit score and your financial life.
Paying Your Bills On Time
Consistently paying all your bills on time is the number 1 way to raise your credit score or maintain a stellar rating. A history of on-time payments is a critical factor in determining credit score, and missing even a single payment could cause your score to drop substantially.
Know the closing date on each of your credit cards and take note of when you normally receive your utility bills. Then set up reminds so you never forget to pay a bill again.
Keeping Your Credit Utilization As Low As Possible
The people with the highest credit scores tend to have the lowest credit utilization rates. That is the ratio between the amount of available credit and the amount that is actually used. Charging as little to your card as possible and paying the balance off at the end of the month will keep your credit utilization rate low and your credit score high.
Using New Credit Sparingly
There is nothing wrong with opening a new credit card account, especially if it comes with enticing perks like free airline miles or bonus gift cards. Do watch out for offers that could hurt your credit score, like store credit cards with low limits. If you use such a card to make a major purchase, your credit utilization ratio – and your credit score – could suffer.
Keeping Your Old Cards Open
You might be tempted to close your old credit card accounts, especially if you no longer use the cards regularly. It is a mistake, however, to close old accounts. The length of your credit history plays a big role in determining your score, and keeping those old credit cards open will not hurt you.
You can always take the actual cards and lock them in a home safe or bury them in a drawer, or even cut them up! Be sure to recover the account numbers and customer service phone numbers and keep them in a safe place away from the credit cards themselves.
Checking Your Credit Report Regularly
You are entitled to a free copy of your credit report every year. That means you can check your report for one of the three major reporting agencies every four months if you wish. You can also use free credit monitoring services to get real-time notifications on any important changes to your credit report or your credit score.
Keeping a close eye on your credit report is a great way to spot identity theft and other problems that could wreak havoc with your financial life. If your credit card issuer provides a monthly credit score, keep a close watch on that as well. A sudden drop in your credit score could indicate a mistake on your credit report.
Keeping A Zero Balance On Your Credit Card
Maintaining a zero balance on your credit cards will save you a lot of money, but it can also boost your credit score. Keeping your balance at zero will reduce your credit utilization ratio and improve your score.
Keep careful track of the amount you spend on your card, and check your balance regularly. If you think you will have trouble paying off the current balance, it is time to switch to cash.
If you want to learn how to do something, you look at people who have already done it successfully. That is true in sports, in business, and in finances. Emulating the habits of those with the highest credit scores is a great way to boost your own score and improve your financial life.
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