Having a good credit score is essential to personal financial success. Your credit score affects your ability to get a mortgage or a car. It can affect your career as well. Employers frequently ask to see a credit report since they believe your life outside of work shows your personality and your ability to be a responsible individual. Even if you have a great job, a bad credit score could put your dreams on hold. All home purchases require credit scores, and most car purchases do as well.
Stay Informed
The best way to protect your credit score is being informed. Each year you have access to one free credit report on annualcreditreport.com, which provides credit scores from three credit bureaus: Equifax, Experian, and TransUnion. FICO provides its own credit score (see Resources). Be sure to use your free report before paying for one with a credit score company. Put your score in a visible place around your office or kitchen so that you are reminded of it before you make any major decisions.
Use Less Than 35 Percent of Your Credit Limit
Your credit score is comprised of five factors: payment history, amounts outstanding, length of credit history, new credit, and types of credit. If you keep all of your credit cards beneath 30 percent of their maximum balance, your score will be stable and acceptable to many potential lenders. Most lenders want to see your amounts outstanding beneath 35 percent, so 30 percent is a good goal since it gives you some space for error. Your payment history can be found on any of your account statements. Always keep old cards open so that your credit history remains intact. Do not take out new lines of credit since having more available credit than you need can hurt your score.
Do Not Open New Accounts
There are many ways to improve a low credit score. Refrain from opening new accounts as your credit score goes down dramatically for six months after you open a new credit card. Be sure to pay your monthly minimum payments on all of your cards since a missed payment will be detrimental to your score.
Follow a Budget
The best way to stay out of credit score problems is to plan your expenses thoroughly. This will help you avoid spending decisions that hurt your score. If you have an accurate budget each month and live within your means, your credit score will increase over time. Make sure that you go to an unbiased financial consultant if you do have credit score trouble.
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