Keeping Your Credit in Check

Your credit score can impact your life in many and varied ways. It can influence where you live, what kind of job you can get and even whether you can get certain forms of insurance.  As Freedom Debt Relief reviews will tell you, keeping your credit in check is worth doing. So, how exactly does one keep their credit in check?  That’s a very good question.

The Secret to Building a Good Credit Score

Paying your debts on time, staying well below your credit limit, maintaining a long credit history and applying for credit only, when necessary, will help you get and keep a good credit score.

How Credit Scores Are Calculated

Each of the factors listed above plays a role in computing your credit score. According to the people at FICO — the agency that calculates and reports credit scores to credit reporting bureaus—your credit score is calculated as follows:

Payment History – 35%

Amounts Owed – 30%

Length of History – 15%

New Credit Applications – 10%

Credit Mix – 10%

Payment History – Paying your debts on time—or even better, before they’re due—will go a long way toward boosting your credit score. Representing 35% of your credit score calculation, this is one of the most important things you can do to get and keep a strong credit score. Where possible, automating your bill payments to make sure you never forget one can be very helpful in this regard.

Amounts Owed – Whatever you do, avoid maxing out your credit. Lenders prefer applicants whose outstanding balances are at or below 30% of the amount of credit available to them. Also, it’s important to know you don’t have to carry balances to bolster your score. In fact, paying your debts off in full every month is one of the best things you can do to keep your credit score in check.

Length of History – The longer you’ve had credit accounts that have been maintained in good standing, the better your credit score will be. The idea being you’ve made a habit of handling credit responsibly, so the likelihood of you going off the rails is slim.

New Credit Applications – In most cases, your score drops by a point or two every time you apply for credit. Lenders tend to get a bit nervous when you submit a lot of applications for credit within a short period of time. This gives the impression you’re having money problems and resorting to credit to try to dig your way out.

With that said, submitting several applications for the same type of credit within a few days of one another (like when you’re looking for a car loan or a mortgage) won’t hurt your score too much. FICO’s algorithm “figures” you’re probably shopping for a good deal.

Credit Mix – Loans come in lots of varieties. Credit card debt is considered a loan. There are also car loans, personal loans, home loans, student loans and others. The more different types of credit you have in good standing, the better of a risk you are perceived to be.

What is a Good Credit Score?

The most common credit scoring method is the one issued by FICO. Base FICO credit scores range from 300 to 850. According to FICO, 71% of Americans’ credit scores fall between “Good “and “Exceptional” under its criteria.

A score of 579 or less is considered “Poor”. Scores between 580 and 669 are considered “Fair”.  Landing between 670 and 739 will get you a “Good” rating. “Very Good” scores range from 740 to 799. Anything above 799 is considered “Exceptional”.

Keping Your Credit in Check

Paying your debts on time, minimizing your credit balances and maintaining a long and positive credit history will boost your score. Doing all the above and applying for credit only when necessary, will also help you get and keep a good credit score. Maintaining a mixed array of credit types in good standing will lift your ranking too.

One more thing to bear in mind, mistakes do happen, and a whole lot of people are willing to work harder to steal than to earn legitimately. Therefore, it’s important to keep an eye on your credit reports. By the way, you have three credit reports out there. These are maintained by three different companies: Experian, Equifax and TransUnion. Reviewing your credit reports on a regular basis will help you spot and dispute erroneous item as soon as possible. You can get a free copy of each one of your credit reports on an annual basis at AnnualCreditReport.com.