Your credit rating affects more than your finances and your ability to secure a loan at the best possible interest rate. Property and casualty insurers sometimes use credit scores to predict risk potential, and a growing number of employers pull credit reports as a way to predict responsibility and dependability. Simply put, good credit can make many areas of your life easier. Here’s how to develop and maintain the best credit rating possible:
Pay your bills on time.
Timely payments are the most important rule for maintaining good credit. If you can’t remember to pay your bills, enroll to have creditors automatically deduct payments from your checking or savings account.
Keep account balances low.
Even if you can pay off large balances, avoid them if possible. High balances signal potential risks to creditors.
Apply only for credit you need.
Each credit application generates a “hit” to your record, increasing your risk as a borrower. Especially avoid applying for credit cards six to 12 months before applying for a major loan. When it comes to credit cards, it’s best to have one long-standing account, which demonstrates stability.
Use credit responsibly.
Credit is a tool to obtain things usually hard to pay for in cash—a home or car—not a license to increase your standard of living. Never apply for credit you can’t afford to repay. Avoid spending more than a third of your income on all debt, including mortgages, credit cards and consumer loans.
Avoid financial “disasters.”
Bankruptcy, court judgments, evictions, loan delinquencies, major, unshrinking debt, and collection actions are killers. Any of these can cause damage you’ll regret for years.
Check your credit report regularly.
Because credit scores come from your credit report, make sure it’s accurate. Check your report annually with all three major reporting agencies: Experian (888) 397-3742; TransUnion: (800) 888-4213; and EQUIFAX: (800) 685-1111. Get errors corrected and take care of old balances and collections. To learn about an annual free credit report, visit www.annualcreditreport.com.
Work with your creditors.
If you do have money problems, alert creditors promptly and seek an arrangement that eases your immediate debt while preserving a good credit standing.
Establish credit in your name.
Even if you are happily married, you should have at least one major credit card in your legal name (Betty Smith, not Mrs. John Smith) to establish your financial identity.
Don’t co-sign for major purchases such as automobiles, appliances or general loans.
Co-signing a loan for someone else makes the debt part of your credit history. If the primary debtor defaults, you are obligated to repay any outstanding balance.
Your credit report is more than your financial history—it’s how others see you as a person. A good credit rating will not only allow you financial freedom and flexibility, but also will give you peace of mind knowing that your reputation is in good standing.
