Like a brewing head cold, your credit score tends to lurk just beneath the service, easily forgettable and causing very little trouble… until suddenly, well, it is causing trouble. Your score is probably only on your radar when it comes time to find a new home or open a new account, and suddenly — bam! — that score you’ve so blissfully put out of your head for months at a time feels oddly impossible to ignore. (Consider this the financial equivalent of a seemingly harmless case of the sniffles that transforms into a full-on flu on thme same day as your best friend’s wedding.) You feel blind-sided, you feel frustrated, and more than anything you just wish you’d paid a bit more attention to this lingering “situation” before it reared its head and became an actual problem. We’re here to help you lay some groundwork with your credit so that you don’t find yourself troubleshooting when it’s already too late.
“Love it or hate it,” says TIAA wealth management adviser Molly McCormack, “your credit score serves as your reputation to lenders, landlords, and employers who can’t access your credit score, but can see your credit report.” More specifically, a strong FICO score (this is the credit score that most lenders use to determine whether or not you’re a risk) will make it a lot easier for you to get approved for credit cards, car loans, mortgages, apartment leases, and jobs. Clearly, it’s something worth focusing on! To help you understand your baseline, McCormack recommends you check your credit score at least once a year (you can get one for free on AnnualCreditReport.com). A “good” credit score, she explains, should fall somewhere between 300 points on the low end and 850 points on the high end. Staying on top of your score on a regular basis will keep you informed of your standing and cue you to dispute any inaccuracies with reporting. It’s a lot harder to repair bad credit than it is to build up good credit in the first place, so proactivity is key. “While carrying the burden of debt can be inhibiting, rebuilding from bad credit can be a difficult process,” McCormack cautions. “It’s critical to set yourself up for success by building and maintaining good credit from the start.” She offers these six tips for doing just that. Keeping up with these suggestions will also ensure that your credit score stays good down the road. Read on for all the details!
1. Pay your bills on time. If being fed up with those annoying “past due” notices isn’t enough of a reason to get caught up on your payments, then maybe your credit score is the inducement you need. Staying current on your bills is a key starting point for your credit, so if you’re having a more significant cash flow problem, McCormack suggests reaching out to your creditors to see if you might be able to make special arrangements.
2. Reduce debt. Stick to a budget so that you can simultaneously pay down any existing debt and avoid racking up further debt. Focus on chipping away at your high-interest credit card balances first, McCormack says, then pay off each successive balance as you free up the money you need.
3. Keep your old credit card accounts open. If you have a wallet full of store-specific cards that you’ve opened over the years in order to score opening specials (been there!), don’t take the scissors to them just yet. Older accounts lengthen your credit history, which is good for your score, but new accounts can have the opposite effect. Think twice before you say yes to new credit card offers, because closing those accounts later on will typically lower your score. Generally speaking, “We recommend that individuals have no more than five credit cards to avoid any risk, as creditors don’t have a ton of confidence in borrowers who keep a dozen accounts open at a time,” McCormack advises.
4. Try to pay off your credit card balance in full each month. Remember: Those credit cards aren’t Monopoly money! If you’re trying to build your credit score, be sure to charge only what you can actually pay off quickly, even if this requires a bit of extra budgeting in the short term. This kind of payment record will signal to businesses that you’re a good credit risk, and your FICO score will improve as a result.
5. Keep a good mix of credit. Don’t be afraid to mix things up where your credit is concerned! “An assortment of different types of revolving credit, including credit cards and installment loans, can drive up your scores,” McCormack says.
6. Limit hard inquiries on your credit report. Every time you apply for a credit card, a loan, or a lease on a car or apartment, an inquiry into your credit is recorded in your files. While many of these “hard inquiries” are, of course, unavoidable, too many can harm your credit score, so make sure that you’re being strategic about the applications you’re submitting. Note that “soft inquiries” — which occur when a business checks your score to see if they should pre-approve you for a credit card or when you check your score yourself — do not affect your FICO score.
If you’ve struggled to follow these guidelines and are seeing those negative habits reflected in your score, don’t fret! “Since your credit score incorporates many different factors, it can often feel very overwhelming to get back on track,” McCormack admits. “In reality, if your credit has not been well maintained, it is never too late to work to improve it.” If this predicament sounds familiar, she suggests focusing on getting your payments current, paying down your credit card balances, and making good on your loans. With a little consistency, you’ll reestablish your good standing and (hopefully) restore your lagging score.
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