5 Tips for Maximizing Your Credit Standing

Posted on by | 7 Replies


141107-Building-Credit

A good credit score is one of the most valuable commodities a consumer can have. After all, your credit standing not only dictates the loan terms you’re offered and the insurance premiums you pay but also affects your ability to rent an apartment, buy a car, or find a job that requires either a security clearance or the handling of money. Heck, it could even have an impact your marital status, since financial irresponsibility is a major red flag for some people.

When all is said and done, your credit standing will either save or cost you tens to hundreds of thousands of dollars – not to mention countless opportunities – over the course of your lifetime. It’s therefore a good idea to make an investment in your credit here and now. But how can you build and maintain a good credit score? Here are some tips:

1. Use a Credit Card Responsibly: Whether you’re starting from scratch or trying to work your way back from bad credit, the best thing you can do is open a credit card and use it responsibly. That means paying at least the minimum amount required by the due date each and every month, if you plan on using the card to make purchases. This will result in positive information being relayed to your files at the major credit bureaus, thereby either devaluing existing negative information or building out a thin file.

Your primary objective at this stage in your credit career should be finding a card that does not charge annual fees for which you can garner approval. That’s what makes secured cards so useful to people with bad or no credit. Secured cards require you to place a refundable security deposit that acts as your credit line. Because this ensures that issuers will get their money back, they can approve pretty much anyone and do not have to charge expensive fees.

2. Review Your Credit Report: We are all entitled to a free copy of each of our three major credit reports (Experian, Equifax, and TransUnion) once every 12 months. Pulling these reports and reviewing them for accuracy is a great way to both gauge your credit building progress and verify that no errors are dragging down your score.

3. Maintain Low Credit Utilization: One of the factors that credit scoring agencies take into account is how much of your available credit you actually consume each month. It’s called your credit utilization. Creditors don’t like to see high credit utilization ratios because it indicates desperation for credit and overzealous spending habits. Ideally, you want to keep utilization at about 40%, but this is obviously more difficult to do when you have low credit limits. In those cases, ratios of around 70% are acceptable.

4. Keep Old Accounts Open: The length of your credit history is another factor on which credit scoring agencies base their assessments. Creditors are more favorable to consumers with long track records of responsible money management, as this provides them with a great sample size for predicting future conduct. So, unless your oldest credit cards have annual fees, keep them open. Your credit history will therefore date back to when you opened the cards and it will benefit you.

5. Don’t Believe the Myths: There are all sorts of myths surrounding credit scores, mostly because people don’t quite understand how they work. Credit scores are based on the information contained in your major credit reports. That much is true. What’s not true is the widely believed notion that your credit score benefits from maintaining a small balance each month. Neither is the idea that you have to make purchases with your credit card in order to build credit. You can build credit simply by maintaining an open account that is in good standing.

Finally, it’s important to note that not all credit scores are created equal. There are hundreds of different credit scores out there, and they have different scores range and take different information into account. So, if you want to order a credit score before applying for a loan, make sure to get the version used by your lender of choice.

Odysseas Papadimitriou Odysseas Papadimitriou is CEO of the personal finance websites WalletHub and CardHub. He previously served as a senior director at Capital One.

7 thoughts on “5 Tips for Maximizing Your Credit Standing

    • Hi there! If you’re paying your bills on time and using loans or credit cards responsibly, then you’re well on your way to an 800+ score. Because the length of your credit history is one consideration that contributes to your score, the missing piece of the puzzle may just be time. Continue to pay all your bills on time and work toward a balanced debt to credit ratio, and you’ll get there!

      Reply
    • I’m very discourage because I have been tracking my credit score with my credit cards and know my score and I don’t pay any rent, I’m an MCPS employee and I have a savings account with you guys and was still denied a personal loan for the holidays; so explain that?

      Reply
      • Hi Lois! We’re very sorry to hear you were denied for your personal loan. Given the number of factors that are considered during the application process, it’s difficult to determine why a loan was denied; but if you would like more information, give us a call at 817-882-0800 and our representatives can look up your application.

        Reply
        • Credit scores are designed by the banks to keep you under control, in your rut and have become so invasive, that yes, you can be denied employment based on a score… Even if something is incorrect. It is nothing more than control of your every breath in life. We are mice on a wheel.

          Reply
          • It’s true that credit scores often affect a person’s ability to gain employment or housing, which is why your score is so important. While banks don’t manage credit scores, there are multiple credit bureaus for financial institutions, employers and other organizations to choose from, so be sure and consider at least the three major bureaus — Equifax, Experian and TransUnion. Everyone is entitled to a free copy of their credit report each year, which you can download without credit card or payment information at https://www.annualcreditreport.com/. If you have questions about your credit or need help rebuilding it, you can also schedule a free appointment with one of our certified financial counselors at any EECU branch. Just visit https://www.eecu.org/financialcounselors to request an appointment.

Leave a reply

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong> 

Required