High Credit Score and How to Maintain It

How to Maintain A High Credit Score

Have you solved the mystery? The mystery of obtaining a high credit score that is. Why is this such a tough feat to accomplish? It is actually easier than you think. Here are a few things you can do to boost your credit score and maintain it.

• Payment History

  Are you paying your credit cards and loans on time? This is the main thing that affects your credit score. Other bills may not be reported to the credit bureaus if you are paying on time, but once you start missing payments, there is a good chance they will end up on your report. Definitively, these unpaid bills will end up on your report if they are sent to collections. Pay your bills on time! It will be the best way to improve or keep your high credit ratings.

• Level of Debt

  Maxing out your credit cards or even pushing close to your credit limit is bad for your score, even if you pay your statements on time. For optimal gain on your score, your combined credit balance when your statement arrives should be around 25-30% of your combined credit limit. If you charge more than 30% on your credit limit before your current cycle ends, you will want to pay your balance down within the optimal range before the current monthly statement closes. Pay attention to your monthly credit balances!

• Credit Score Factors (In Order of Influence)

  1. Payment History

     • Pay on time, every time

  2. Credit Utilization

     • Using 25-30% of your combined credit limit

  3. Credit Age

     • Determined from the average age of your credit lines. The longer history of each credit line, the better.

  4. Mix of Credit Types

     1. Secured – Creditor guarantees it will be paid back by putting a lien on an asset you own. If you do no pay it back, your asset will be taken by the creditor. Examples: car loans, mortgages, and home equity loans.
     2. Unsecured – This is when you give your word to the creditor that you will repay what you borrow. Examples: Credit cards, utility bills.
     3. Revolving – The creditor has approved you for a set amount and you can access that amount whenever you want, as long as you are at least paying the minimum amount of your monthly balance of that line of credit. Examples: Credit cards and home equity lines of credit.
     4. Installment – You borrow a fixed amount of money for a period of time and repay that amount in set payments. Examples: mortgages, car loans, and student loans

  5. Recent Applications

     • Every time you inquire for new credit (credit pull), whether it be a credit card or loan, it can have a negative impact on your score. It is one thing to have your credit pulled by a couple different mortgage companies, which would have a minimal effect if any. Its another thing to have your credit pulled by multiple different industries over a short period of time, which will negatively effect your score. Also, taking out any new line of credit or getting into a new loan of any sort will drop your score.
       • Pro-tip: Opening a new credit card or getting in a car loan may delay your chance of getting into a home loan. Avoid taking out any new line of credit or loan near the time you are wanting to get in a home, as it will drop your score and increase your debt-to-income ratio. While it is not definitive that it will stop you from getting in a home loan, it is something to be cautious of.

Benefits of a High Credit Score

Though you can get by with a lower score, having a high score will make your life much easier and save you money.

• Low Interest Rates
  • The higher your score, the lower your rate. The lower your score, the higher your rate.
• Better Chance for Approval
  • While having a high score does not guarantee a loan, it improves your situation tremendously. You still need to have a reasonable debt-to-income ratio.
• Negotiating Power
  • With a high score, you have leverage to negotiate a lower interest rate.
• Higher Loan Limits
  • A high score will give you the option to borrow more money because you have proved the ability to pay back your debts on credit.

Improving Credit

1. Pay back any late payments you may have
2. Settle any collections showing up on your credit report
3. Keep paying everything else on time
4. Do no take out any more lines of credit
5. Take actions to maintain a good score
   • Refer to “Credit Score Factors” above