Building and keeping a good credit rating is important in wealth accumulation even if your goal is to be debt free. Below we offer five simple steps to help you on that path. Please take the time to make certain your credit report is accurate and know that the lower rates you will receive when you borrow will help you on the path towards debt free living.
1) Pay Your Bills on Time The most obvious way to maintain and improve your credit rating is to pay your bills on time. Even one late payment can hurt your credit score.
2) Check Your Credit Report For Errors-Then Correct Them How Common are errors on a credit report? The Federal Trade Commission found that 26 percent of 1,001 randomly selected consumers who reviewed their credit reported a “material error” – something that affected their credit scores. For 5 percent of participants, the mistake put them in a greater credit risk tier, which could result in higher interest and insurance rates.
3) Know Your Number Your credit score can effect so many areas of your life now days that you may not have considered. Bad credit could cost you a job. Some employers ask your consent to pull your credit. This practice is being challenged but is still used in many states for certain positions. Your credit score can also affect your insurance rates. The bottom line is you need to pull both your report and know your score. Promotions from companies are always changing so you may get a free report without a score. Many companies will offer something free then try to scare you into paying for an expensive service. You can get your credit score a one-time look at your credit score currently for $19.95 at MyFICO.com. There have been reports that the score given to customers is not the same as those give to merchants so be aware of potential inaccuracies. Credit Karma and Credit.com will offer free promotions and provide a low cost or no cost alternative. Please know the scores they provide for free may not be the same as FICO scores used by creditors to evaluate your credit. Be careful and unless you need major credit repair you don’t need the expensive services they offer. I am reluctant to recommend any service above another without the disclaimer that things can chance but my personal favorite is annualcreditreport.com. The report is free and they seem to have the best reviews.
4) Pay Down Existing Cards and Don’t Apply for New Credit. Your credit score is partially based upon the percentage of your available credit that you use. Paying down balances will reduce that percentage. Avoid the temptation to take our new credit. New credit applications lower your score even though they increase your available credit.
5) Keep Paid Off Accounts Open As I mentioned your percentage of use of available credit effects your score. So keep the accounts you have open and pay down their balances. Also the longevity of accounts can help your score so it works to your advantage two ways to keep you accounts open. The big exception could be an account that requires a steep anyal fee. In such a case the decision to keep that account open after paying it off could be based upon your future objective. If you are going in for a mortgage the next few months the closing of that account could hurt your score. If not you may want to rid yourself of the fee. Like everything else in finance there is a decision to be made based upon the cost versus the benefits.