Establishing a Good Credit Rating
If there is one magical code that affects our entire financial future, it is your credit score. Most people have no idea how it is calculated, and even worse, they have no idea what causes their score to go up or to go down. There are ways, however, to resuscitate a dying credit score. If you have any plans whatsoever when it comes to buying a home or making any other big ticket item, you’ll need a healthy credit score to get it done. So, let’s take a look at they keys to getting and keeping a good credit score.
The mantra for years from financial professionals when it comes to a good credit score is: only take out credit when you need it, not when you feel like a shopping spree, pay ALL of your bills on time, including utilities and rent, and keep your balances low on the credit lines you do have.
Most people don’t realize that all of the bills we pay are reflected on our credit report, even things like utilities and rent (assuming you go though a major company). Paying bills on time is one of the most important aspects of getting and keeping a good credit score. Even if you are a day or two late on your power bill or on a credit card bill, it will most likely be reported to a credit bureau and your score will tick down a notch or two.
So, what is a credit score, anyway? It is a three digit number that is assigned to your file that says how responsible you are when it comes to managing your credit. An excellent score is 720. If you have a score of 720 or above, you are most likely going to get the best rates you can from credit card companies and from lenders for a mortgage. But most people are situated below the 720 mark.
If you are looking to give your credit a quick boost because you are considering applying for a mortgage or you want better quality credit card offers, nothing will spike your score faster than paying down outstanding credit balances. You can boost your score as much as 20 points over a two month period by paying down your balances.
Another good trick if you are in dire financial straits is that most credit card companies and lenders do not report late payments as long as they are not more than 60 days past due. While it is never a good idea to juggle payments so they are only a “little late†instead of 60 days late, it is a better idea than letting multiple accounts get in even worse shape.
One thing you should avoid at all costs is closing out accounts. It may seem like common sense to close out an inferior credit card account if you just got a spiffy new card with a low rate and a high credit line, but don’t do it. By closing out that other line, the credit bureau will deduct points from your score. The reason for this is that you then look like you are closer to reaching your overall ceiling of credit. By keeping those accounts open, you have more overall credit to play with and that makes your overall score look better.
A final tip is to order copies of your credit report yourself so that you can check to see how accurate the information there is. You have the legal right to challenge anything on your credit report for accuracy. The credit bureaus do make mistakes and a mistake like that can cost dearly in the future. A bankruptcy can stay on your report for 10 years, no longer.