Having excellent credit opens many doors. It can mean lower interest rates on loans, higher credit limits, and better opportunities for renting or buying a home. From my own experience, developing certain habits can greatly improve your credit score. Here are five habits that people with excellent credit consistently follow.
1. Paying Bills on Time, Every Time
One of the most critical factors in your credit score is your payment history. People with excellent credit make it a habit to pay their bills on time, every time.
Personal Insight: When I first started building my credit, I missed a few payments due to forgetfulness. I quickly learned that even one missed payment can negatively impact your credit score. To avoid this, I set up automatic payments for all my bills. This ensured that I never missed a payment, and over time, my credit score improved significantly.
Why It Matters: Consistently paying your bills on time shows lenders that you are reliable and responsible. This makes them more likely to offer you credit at favorable terms.
Tips for Success:
Set Up Reminders: Use calendar alerts or reminders on your phone to keep track of payment due dates.
Automate Payments: Set up automatic payments through your bank or directly with creditors.
Keep a Budget: Make sure you have enough funds to cover your bills by maintaining a budget.
2. Keeping Credit Card Balances Low
Credit utilization, the ratio of your credit card balances to your credit limits, is another crucial factor in your credit score. People with excellent credit maintain low balances relative to their credit limits.
Personal Insight: At one point, I found myself using a significant portion of my available credit. My score dropped, and I realized the importance of keeping balances low. I started paying off my credit cards more aggressively, aiming to keep my utilization below 30%.
Why It Matters: High credit utilization can signal to lenders that you might be overextending yourself financially. Keeping your utilization low shows that you manage your credit responsibly.
Tips for Success:
Pay More Than the Minimum: Aim to pay off as much of your balance as possible each month.
Spread Out Expenses: If you have multiple credit cards, spread out your expenses to keep individual balances low.
Increase Your Credit Limits: If possible, request higher credit limits. This can lower your utilization rate, as long as you don't increase your spending.
3. Monitoring Credit Reports Regularly
People with excellent credit regularly check their credit reports to ensure accuracy and stay informed about their credit status.
Personal Insight: I once found an error on my credit report that was dragging down my score. By regularly checking my reports, I was able to catch and dispute the error quickly. This vigilance helped maintain my credit score.
Why It Matters: Regular monitoring helps you catch errors or signs of identity theft early. It also keeps you aware of your credit status, so you can make informed financial decisions.
Tips for Success:
Get Your Free Reports: You are entitled to a free credit report from each of the three major credit bureaus (Equifax, Experian, TransUnion) once a year. Visit AnnualCreditReport.com to request your reports.
Use Credit Monitoring Services: Consider signing up for a credit monitoring service that can alert you to changes in your credit report.
Review Reports Thoroughly: Check your reports for any errors, unfamiliar accounts, or inaccuracies. Dispute any incorrect information immediately.
4. Limiting New Credit Applications
Applying for new credit results in a hard inquiry on your credit report, which can temporarily lower your credit score. People with excellent credit are mindful about applying for new credit.
Personal Insight: When I was building my credit, I made the mistake of applying for several credit cards in a short period. My score took a hit, and I learned the importance of spacing out credit applications.
Why It Matters: Each hard inquiry can lower your score by a few points. Multiple inquiries in a short time can have a more significant impact, as it may appear to lenders that you are in financial trouble or planning to take on a lot of debt.
Tips for Success:
Only Apply When Necessary: Avoid applying for new credit unless you need it.
Space Out Applications: If you need to apply for multiple credit products, try to space them out over several months.
Pre-Qualification: Use pre-qualification offers that only require a soft inquiry, which does not affect your credit score.
5. Keeping Old Accounts Open
The length of your credit history plays a role in your credit score. People with excellent credit keep their old accounts open, even if they are not using them regularly.
Personal Insight: I made the mistake of closing one of my oldest credit cards, thinking it was unnecessary. My credit score dipped because I shortened the length of my credit history. Since then, I’ve kept my old accounts open to maintain a longer credit history.
Why It Matters: A longer credit history provides more data for lenders to assess your creditworthiness. Closing old accounts can reduce the average age of your accounts, which can lower your score.
Tips for Success:
Use Old Accounts Occasionally: Make small purchases on your older credit cards and pay them off to keep the accounts active.
Avoid Annual Fees: If an old card has an annual fee and you want to close it, consider asking the issuer to downgrade it to a no-fee card instead.
Monitor Inactivity: Some card issuers may close inactive accounts. Use the card periodically to keep it open.
Building and maintaining excellent credit requires discipline and good financial habits. By paying bills on time, keeping credit card balances low, monitoring credit reports, limiting new credit applications, and keeping old accounts open, you can achieve and maintain a high credit score. These habits have helped me improve my credit score, and I’m confident they can help you too.
Remember, improving your credit score is a marathon, not a sprint. It takes time and consistent effort. Start incorporating these habits into your financial routine, and over time, you’ll see positive changes in your credit score. Good credit opens up many opportunities, so it’s worth the effort to build and maintain it.
