In the FICO model, a Good credit score is usually between 670 and 739. The higher your credit score, the better your chances of getting a loan with a low-interest rate. Other benefits include low monthly payments, switching to a fixed interest rate to maintain your payments, etc.
Reaching that perfect 3-digit number might be challenging but maintaining it is more difficult. Remember: A Good credit score allows you to save more. It teaches you the art of budgeting and helps you keep up with your score or even improve it.
There are five key pieces that help you calculate your credit score, and these include your credit utilization ratio, payment history, new credit, a mix of credit, and credit age. However, the credit scoring system is not always accurate, which is why there are certain rules you need to follow to maintain good credit health:
Pay Your Utility Bills on Time
The first rule for maintaining your credit score is to pay all your bills on time. Anything you choose to pay through your credit card should be balanced before the next billing cycle. To ensure you never miss a payment, set the account to auto, so you don’t skip the due date accidentally.
Keep the Credit Balance Low
Having a high credit limit and low balance is perfect for maintaining your credit utilization rate. Your DTI ratio tells you how much credit is available on all your credit cards. The general rule of thumb is maintaining a DTI of less than 35%.
Remember: Your DTI ratio is not about how much you owe but your balance compared to the overall credit limit. For example, let’s say you have a credit card with a credit limit of $10,000 and $500. Based on this, your DTI ratio is 5%. If you had the same balance on a credit card with a credit limit of $1,000, your DTI ratio would be 50%.
Check Your Credit Report and Score Regularly
They say what you don’t know can’t hurt you. When it comes to your credit report, it’s the exact opposite. This is why monitoring your credit score and credit report is important. Besides identity theft, an error in your report can also hurt your credit score.
What usually happens is that the information gets lost even when you have made a payment, and the credit reporting agency is told that you missed it. The good news is that you can dispute this negative marking.
First, you need a free copy of your credit report, which you can do yearly from Experian, your bank, or your card issuer. If you see any payment in red, which you have already cleared, write a letter to the credit reporting agency and include proof, such as pay stubs, to show that the marking on the report is wrong.
Don’t Close Your Old Credit Cards
Last but not least, don’t close your old credit card. Even if there’s no balance on the credit card, its credit history contributes to your credit score. Once you close the credit card, its credit history is wiped, which lowers your credit score.
Moreover, this also reduces your credit. For example, let’s say you have three credit cards with a combined limit of $10,000. The credit you chose to close contributed $3,000 to the limit. Now, you are left with $7,000, which means you will have to re-plan your budget.
So, whether you are opening a new credit card, closing an old one, or making a late payment, know how it will affect your credit score and only then proceed.