The "do's" and "don't's" of Credit
Prepared by Dylan Putnam, VP of Mortgage Lending, NMLS #263877, Guaranteed Rate
You probably already know that your credit is a big factor in getting a loan, but you may not realize just how much of an impact it can have on all aspects of your financial life. Your credit can influence everything from interest rates and insurance premiums to apartment rentals and even job eligibility. During my more than 22 years of being in the mortgage industry, I have run thousands of credit reports. In that time, I have learned some “key” components to keeping your scores healthy and strong. Here a few simple ideas consumers can utilize to keep those credit scores as high as possible.
At the risk of pointing out the obvious, the single biggest influence on your credit score is whether you’ve made your loan payments and done so on time. This represents 35% of your score and is the biggest slice of the pie. In a nutshell….pay your bills on time. The second biggest factor in your score is credit utilization, which is the percentage of your available revolving credit (i.e. credit cards) that is being used. This accounts for 30% of your score. Consumers with the best credit scores use just 7% of their revolving credit lines, but anything below 30% is generally considered acceptable.
Don’t close out old credit card accounts. Old established accounts show your history and tell about your stability and paying habits. If you have old credit card accounts that you want to stop using, just cut up the cards or keep them in a drawer but keep the accounts open and DO NOT close them out as doing so can lower your score dramatically.
Remove credit card balances. One of the things that determines your score is how many of your credit cards have balances. If you are spending varied amounts on different cards, it doesn’t reflect well in your report. So, the best thing to do is to do away with all the cards with small balances and pay them off. Just keep one or two cards that you use for all your day-to-day needs.
Hence, by keeping some of these tricks or remedies in mind, you are very likely to improve your credit report and in a few, short months your credit score will start increasing.
All the best!