A good financial plan is a road map that shows us exactly how the choices we make today will affect our future — Alexa Von Tobel
Keeping a good credit score is a journey, not a destination. Here are a few things that I have kept in mind to achieve and preserve a good credit score and that could help you as well to get to the same goal:
1. Never close your earliest credit card
Your credit report and your credit score are the two of the most vital aspects of your financial wealth — Erin Lowry
Credit history is very important when it comes to a credit check. Let your earliest credit card stay open even if you do not use it. It will look as if you have a record of many years, and you look more reliable in the eyes of the loan officers.
2. Pay off debt in 2–3 days
A man who pays his bills on time is soon forgotten — Oscar Wilde
Paying off debt every 2–3 days allows you to restore your credit limit and build a solid reputation of paying debt consistently. This is one of the most important ways to boost credit health.
Note that it is not required to pay your debt this soon, but I would recommend doing so to build a reliable credit history of paying off outstanding balances early and in an orderly manner.
3. Do not finance retail
Beware of little expenses; a small leak will sink a great ship — Benjamin Franklin
You must have run into retail shops that offer discounts if you open a credit card with them. Keep in mind that they do run a credit check which will affect your score. Try to avoid these types of credit cards, especially right before you are looking to apply for a loan.
As described earlier, you should always be looking to keep your outstanding balances low and have your numbers of credit checks as low as possible.
4. Do not use more than 40% of your credit card limit
When prosperity comes, do not use all of it — Confucius
Credit card usage has a high impact on your credit score. Although the bank gives you a particular limit on your card, it is advised to use up to 40 percent of the limit. The balances on the account should not be too high compared to loan limits. Keeping low balances on the account benefits the score in general.
Paying the card every 2–3 days will let you use the card more often up to 40 percent and will help you build up a strong credit history of consistence and fast debt payments.
If you want to read how I became financially independent, click here.
5. Always ask if there will be a credit check
Good credit is key to better lifestyle — Shawnta Shynedapoet Peterson
Whenever you are offered a discount if you finance a purchase, always ask if there is going to be a credit check. A high number of credit checks indicates more insufficient funds and the need for debt to afford your expenses.
However, the good news is that whenever you are approved for credit, the small score drop will disappear in a short time if you are consistent and in time with your payments.
6. Prioritize paying off debt
Pay off your debt first. Freedom from debt is worth more than any amount you can earn — Mark Cuban
This is probably the most important step. When you pay off a loan/debt your score jumps up a bit, depending on the amount of the loan. This is the most wonderful thing you could do to your credit score. Examples include paying off your car, the house, etc.
7. Too many credit cards indicate greater risk
Have you heard that one person that always advices to get as many credit cards as possible? Well, that person is partially wrong. Although you will receive a higher total credit limit, your outstanding debt will increase. For many banks, a big number of credit cards indicates higher risk of paying off debt.
Personally, I have built my credit score with only two credit cards. One that I have opened years ago and I now rarely use, and the other one that I use consistently.
8. Too many loans lower the score
To contract new debts is not the way to pay old ones — George Washington
If possible, try to avid having too many loans. If you stay away from financing retail purchases etc as advised earlier, you should be fine. Get as few loans as you can. However, there are a few exceptions.
9. Get a loan and then pay it off
Nothing changes your life more, other than God and love, than moving your credit score 120 points — John Hope Bryant
If you have the cash and want to build your credit score, you can finance your purchase and later pay it off completely. It is advised to pay your increments each month for a few months and then pay it in full. This should definitely boost your credit score in no time.
10. If possible, join a credit line
When you become an adult, your GPA is replaced by your credit score — Ghaju
If you have someone who has a long, strong credit history and it is someone who you trust and trusts you back as well, join their credit line. Any payment that they make, or payments in full, will also affect your credit score by increasing it.
Having a good credit score is a journey and not a destination. By keeping a few things in mind related to your credit card you should improve your score in no time.
Such things include paying your debt every 2–3 days, using up to 40 percent of your limit, and prioritizing paying off debt.
Keep in mind to always ask if there will be a credit check whenever offered financing, and avoid financing retail purchases.
Avoid having too many credit cards and keep your number of loans low. If possible, join a credit line of someone you trust and trusts you back. Good luck on your journey!
Becoming debt-free is about more than just paying off debt. It’s about discovering freedom, flexibility, and control over your life, your finances, and your future — Unknown
Keep dreaming, keep building.