Maintain Your Credit Rating

Your credit rating can affect everything from the price you pay when buying a house to whether or not you are hired for a job. It is therefore very important to maintain a good credit rating. Since numerous factors affect your credit rating, you have to do more than one thing to keep a high score. But they boil down to a few broad methods. You need to cultivate good habits, keep good track of your credit, and address any credit problems that may arise.

Steps

Cultivating Good Habits

1. Use a credit card for everything. It might seem counterintuitive, but people with excellent credit use their credit cards more than most people, and they pay for everything on the card on time all the time.
   • The difference is in the way they see the card itself. Those with excellent scores think of it as the dominant form of currency, representing the money they have in the bank. People whose scores are only fair often think of the card much differently, as an extravagance to be used sparingly. Realize that an unpaid balance is a high interest debt!
2. Make your payments on-time. Payment history is the biggest single factor determining your credit score. It makes up for 35% of FICO. Paying your entire balance on time, every time, is simple advice, and may seem trite, because it is easier said than done. Nonetheless, paying on-time and in full are the most powerful tools you have to create and keep a good score.
   • Just one late payment could negatively affect your credit score by 50-100 points.
3. Ask for more. People with excellent scores ask for higher credit limits fairly frequently (once or twice a year). It's a great habit to get into as well, because it's essentially allowing your creditor to improve your credit score, since it decreases your overall credit utilization, so long as you continue to make about the same charges on the card. If you utilize too large a proportion of your available credit, it weakens your credit.
   • As with anything, moderation is key. If you're asking for higher limits every week, you will generate a number of hard pulls on your report, which causes your score to decrease. Once or twice a year, ask a creditor with whom you have a good history for a higher limit.
4. Don't use more than a third of your available credit. Even though your overall credit limit might be $9000, it will hurt your score if more than about $3,000 of that limit is being used.
   • This is called the “amounts owed” section of your credit score, which isn't the most straightforward name. It means the amount owed relative to your credit limits, and not the entirety of the amount of debt owed.
   • Studies show that people with a high credit score use around 7% of their credit limit.
5. Get more than one source of credit. The mix of credit is only about 10% of your total score, but it is a factor. Once your credit is rehabilitated to the point that you can qualify for a loan, you should take out a small loan or line of credit in a different form than the type of credit you already have.
   • For example, if you only have one credit card, purchase an appliance on an installment plan or take out a small personal loan. It's never a bad idea to save up the amount of the loan before you apply, put it in a separate account, and simply have the loan payments automatically draw from that account.
6. Don't close lines of credit. If you cancel a card or another line of credit, the total amount of available credit you have will lessen, which will negatively affect your score. If you have one card you don't use very much, charge a small recurring bill, like a phone bill or a trash bill, to the card. That will keep it active and with a small but manageable balance.

Keeping Track of Credit

1. Check your credit reports and your credit score frequently. The kinds of people who have good credit and keep good credit are the ones who pay attention to it. Everyone in the US can get a free credit report from each of the credit bureaus once a year (meaning up to three different occasions). Since this is a report for you and not an inquiry from a creditor, it won't affect your overall credit rating. The report is a complete account of your credit history—what you've paid and when you paid it, what your debts are, and when you applied for new lines of credit. Your score is an estimate of how risky it might be to lend you money. They're two related but different gauges of your financial well-being, and it's important to know both.
   • Check your credit report at https://annualcreditreport.com.
   • Check your credit score (for free) at https://www.creditkarma.com.
2. Correct mistakes in your credit report. Since everyone gets one free credit report per year, everyone should examine theirs for mistakes. As many as one in five Americans have an error on their credit report, so check diligently. Sometimes they're serious mistakes and sometimes they're not, but there's only one way to know. If you find a mistake, do the following:
   • First, notify the credit bureau of the error. Send a physical letter via certified postal mail, enclosing a copy of the credit report, the error, and any documents supporting your claim. Each credit reporting agency has a different process for reporting and resolving a dispute.
   • Repeat the process with the creditor (not the credit bureau) who has filed the incorrect information. Request that the creditor send you courtesy copies of any correspondence they initiate with the credit bureau.
   • It's always best to put everything in writing when you're dealing with creditors or credit bureaus. Writing makes them accountable for their words, and ultimately, for their claims to you.
   • A credit counselor or advisor can go over your credit report with you and help find any errors.

Addressing Credit Problems

1. Limit applications for new credit. When you need a new line of credit, choose just a few lenders you think will approve you, and apply to as few of them as possible. That's because new applications for credit result in "hard pulls" of your credit report, and a number of them in a short amount of time makes it appear you are trying to amass a great deal of credit at once.
2. Contact creditors to manage your debt. If you are at risk of falling behind on a bill, contact your creditors as soon as you can. If you ignore them, not only will you sow distrust between yourself and the creditor, you greatly increase the chances of them reporting the missed payment to the credit reporting agencies.
   • You're also far more likely to be able to set up payment plans or modify the terms of a loan if you've been speaking with your creditors all along.
   • Seek the advice on an attorney. Especially when debts are large, secured or might lead to bankruptcy, you want to make sure everything is being handled in your best interests.
   • Realize that partial payment agreements, collection suits and bankruptcy filings will remain on your credit report, affecting your score for years.
3. Negotiate negative items off your report. It won't always work, but you can sometimes negotiate with a creditor to remove a negative item from your report. Counterintuitively, this works best when you still owe money to the creditor. Most creditors would rather get some money than no money, so there's an incentive for them to make a deal.
   • Write your creditor and offer to pay a portion of the account if they will remove the item from your credit report (or at least mark it as “paid as agreed”). If they agree to your offer or you agree to their counteroffer, get the agreement in writing and uphold your end of the bargain.
   • If you're considering bankruptcy, let the creditor know. You'll almost certainly get a deal (sometimes at a steep discount) if you do, because many creditors get nothing at all after bankruptcy.

References

See also

• Dispute Items on a Credit Report
• Dispute Credit Report Errors
• Maintain Good Credit
• Improve Your Credit Through a Bank

What links here

• File Bankruptcy in the United States
• Get Out of Debt
• Build Credit Without Credit Cards
• Check Your Credit Score
• Deal With Collection Agencies
• Manage Your Credit
• Improve Your Credit Through a Bank