Steps to a Higher Credit Score!

Ok, for those of you who follow my posts, you should know by now, how I feel about using credit to purchase things that you can easily pay cash for.  And with that idea in our heads, let me revise those thoughts into something a bit more useful.  The use of credit to purchase luxury items that you CAN NOT afford is a trap.  STAY AWAY from this at all costs!  If you can't control your spending, and you don't have the money THEN YOU SHOULDN'T BE SHOPPING!

Now that I got that out of the way, I want you to know that the use of "credit" is not always a bad thing.  It can help you get better interest rates on big ticket items (i.e a house or a car) and it is a HUGE factor in the way your credit score is calculated.

So let's take a look at how they come up with your "scores" and see if we can build some habits to help keep your credit score as high as possible.  Let's start with the building blocks of a good credit score.Your credit score is based multiple factors.  So lets take a look at them below.

Building a Good Credit Score

1. Income-Everything starts with your income. The higher your income the more credit you can take on without a hit to your credit score, this includes revolving credit as well.
2. Length of your credit history-  In this case the longer you have history the better. One easy way to keep your score higher is to maintain old credit cards. Even if you want to move on, closing that account that has been open for five or ten years will affect your score negatively. It is best to keep a zero balance on this account, use it for one purchase every three or four months, and request your balance lower to the minimum allowable.
3. Credit Cards: How Many is Too Many?- The other side of this is having too many credit cards. Credit card limits reflect the total amount of revolving credit available to you. The more credit you have available to you, the less credit you will be able to qualify for. All of this contributes to a lower credit score. Keeping two (three maximum) is the best way to go. Revolving credit includes department store cards, grocery store cards, gas cards, etc. Avoid signing up for cards that promise store discounts because that limit will be reflected on your credit score.
4. Avoid taking the automatic limit increases. There is no need to have a high credit card limit that you never come close too. Your emergency credit card should have a limit under $10,000. High limits negatively affect your score, so keeping track of them can keep your score higher.  Keep control over this!
5. Request a limit increase-  this comes in handy to keep your "available credit" numbers high.  If you have too much of a balance on your credit card, this can have a negative affect on your credit, so you want to keep your balance at about 35%-50% of what your "credit limit" is on each card.
6. Applying for Credit-Too many applications will also ding your credit score, but not by much. Remember, your credit score enables you to get credit, so don’t go overboard avoiding all credit. When you do need to apply for credit, make sure all of the applications happen in a 30 day period. You only get one ding per 30 days because the companies expect you to use credit. This will not seriously affect your score unless you constantly apply for credit.

Ok so now that you have an idea of how to build good credit, let's take a look at how to KEEP that good credit that you built.

1. Make sure that your payments are on time. I know this sounds like a given, but you would be surprised how many people don't know this one.  If you miss a payment, it could lower your credit score by as much as 100 points! Missing a payment is the quickest way to ruin your credit.  But there are some tricks to this.  There are two different types of "late".  The first type of late is according to your credit card company.  If your payment is due on the 1st and you pay on the 2nd, your "late" and they assess you a "late fee penalty".  This can add up so try to avoid this at all costs.  The second type of late is "credit score late".  Credit card companies are known for waiting for you to be 30 days late before reporting it to the credit beareaus.  So if you need to be late and are worried about it, this is a nifty trick to help keep your credit scores up. 
2. Don't carry high balances on your credit cards. Having more than 35% of your credit card used up could lower your credit score. To keep your balances low, and ONLY if your good at managing your money, you can use your credit card for something that you could pay cash for and then pay the balance off at the end of the month. That way you can pay it off quickly, but are still using it so you are building your credit.
3. Credit History-  We went over this in "building" your credit. The longer a credit card is open, the more it helps your credit score, so never close a credit card, even if you don't use it very often. Closing a ten year old credit card could take a bite out of your credit score.
4. Avoid store credit cards. The use of store credit cards is considered to be risky due to the fact that most stores where you can get credit cards sell luxury items. In which case, at that store you would be making luxury purchases which are one of the biggest reasons people are in such HIGH DEBT! 
5. Payment History- Paying bills on time makes you a less risky borrower. Everyone makes mistakes, so don’t expect that one payment you sent in three days late to show up on your score. Being chronically late; however, will ding your credit score. There is no magic number of late payments that gets you on the late payer list, but it takes more than one and less than five late payments (in a row). Some of this can be delayed by simply working with the company that you will be paying late. In the event of an emergency, calling your credit card companies and working out a plan you stick to can save you unnecessary dings on your credit score.

Ok so now that you know the steps to building good credit and KEEPING good credit, let's take the steps to keep those scores HIGH!

Paycheck Distribution Coaching has been created to help you keep control of your finances, educate you on how the "financial" industry works and to keep you informed and motivated to reach your financial goals.  Everyone needs a coach....a Paycheck Distribution Coach. 

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