by Shane Adair, Marketing Manager
A good credit score is an incredibly valuable asset. It helps you do everything from secure lower interest rates on credit cards to access more favorable terms for a variety of loans. And while credit scores aren't usually directly seen by employers, background checks can include a modified credit report that helps businesses identify issues related to potential risk, as NerdWallet pointed out.
It's safe to say good habits tied to your credit can lead to some major advantages. Let's look at how you can stabilize your credit score by addressing some tendencies that can have a negative effect on it, then review some key advice for boosting your score.
The first step to raising your credit score is addressing potential issues that lower it or otherwise prevent it from rising.
It's important to remember that some concerns simply take time to address. Your oldest credit account, for example, is a core element of calculating your overall score. But this activity is measured in a span of many years. You won't unlock the full benefits until you maintain that account for upwards of 25 years, as CreditCards.com pointed out.
There is a positive to be had in this situation, however. Every month that you maintain your oldest account in good standing is another step closer to a higher score. Limiting the closing of accounts and keeping existing ones open - as long as they don't place significant financial burdens on you, of course - can help you set the stage to raise your score.
Other potential changes you can make to stabilize your score include:
Paying off your credit card balance and other bills on the due date may not be enough to positively influence reporting to credit bureaus. Many companies that issue credit cards report balances to credit agencies around the end of the billing cycle. This can give the appearance of high credit utilization, which can negatively affect your credit score.
One strategy to consider is paying down your balance, especially when you use a card heavily in given cycle, before the due date. If you're paid on a weekly, bi-weekly or semi-monthly basis, you can also consider making payments that align with your paychecks, keeping your balance low over time.
Applying for several credit cards in a short period of time means a number of hard inquiries to your credit, which can drop your score. Additionally, Investopedia pointed out that it's easier to overuse your available credit when you have several open accounts. If your balance across all cards exceeds 30% of your credit - this is called the debt-to-credit ratio - you can expect to see a lower score in the coming months.
To avoid this issue, you should limit the number of cards you apply for at any given time. You shouldn't regularly apply for new cards. Instead, carefully consider the benefits, like increasing your credit limit (which can raise your score) and points or miles accrued through a specific card's program. Only select additional cards that offer strong value and apply for them infrequently.
With a better understanding of how to avoid behaviors that can ding your credit score, it's that much easier to work toward improving it in the long term. Some practical advice to consider includes:
Opening a handful of credit cards is a good strategy - a Gallup poll indicated those who use credit cards have, on average, 3.7 of them. Maintaining these cards increases your overall available credit and builds the overall age of your credit as well, both of which contribute to increased scores over time.
Access to all of this credit can be enticing, however, whether it's planning a vacation or buying gifts for the holidays. Be vigilant with your spending and, if you do need to use more of your credit to pay for an emergency or other unexpected, unavoidable expense, make a plan for paying down the debt as soon as possible. Remember that 30% is the magic number when it comes to the debt-to-credit ratio. If you can keep the total amount owed on your cards below this percentage, it won't have as serious of an impact on your score.
Despite the importance of credit reporting and scores, and the amount of time and effort that goes into calculating them, it's entirely possible that a reporting bureau could make a mistake on your report. This could drag down your credit score even though you haven't done anything wrong. You can access your reports from the three major credit reporting bureaus - Equifax, Experian and TransUnion - for free through the government-authorized website developed for this purpose: Annual Credit Report. If you see an error or other issue, reach out to the bureau or bureaus that reported the error, as Experian suggested.
Depending on what your credit card issuer offers, you may also be able to see your credit score on a weekly or monthly basis. Chase, for example, offers weekly free reporting for cardholders.
Reliable, secure savings and checking accounts are a critical need when it comes to depositing paychecks and managing credit card payments. To learn more about what we can offer you, get in touch with TAB Bank today!
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