Keys To A Good Credit Score

Establishing a good credit score is sometimes depicted as something mysterious or undefinable. The reality is, there are objective factors that influence your credit score and you have the ability to alter them. Anyone who’s ever received free insurance quotes knows that your credit standing affects your ability to take out loans, refinance your home, or just open a bank account. Here’s the skinny on how to maintain a good credit score:

Live within your means.

This is an overarching rule that will protect you from a number of financial pitfalls. Shopping on a budget, balancing your checkbook, living frugally all exist under the canopy of living within your means. The shorthand of this is simple: if you only have $5 in your hand, you can’t spend $10 on lunch. This sounds simple, but if more people applied this basic truth to bigger expenses, we wouldn’t see such rampant debt across the country. You shouldn’t live at the edge of your income, and you certainly shouldn’t exceed it.

Don’t take on a home loan you can’t handle.

This is what got the housing market into the mess we currently find it, a debacle caused by irresponsible lending and borrowing. You know your financial situation better than anyone. And you’re the one who will be stuck with devastatingly poor credit if you can’t repay the loan and are faced with foreclosure. This falls under living within your means, but on a bigger scale. Sometimes you just have downsize your expectations and finance a home you can afford.

Don’t spend money you don’t have (with a credit card).

The credit card part is implied, as it’s really the only way you can spend money that you don’t actually have in your bank account. To be sure, it’s not bad to have a credit card. In fact, making regular payments with one is an excellent way of building your credit score. But the flip side of that is that missing payments and going into default can do incredible damage to your score. Use your credit card for small, monthly expenses, like utility bills, cell phone payments, and groceries—stuff that’s frequent enough to accrue good standing, but cheap enough that you will be able to pay it down at the end of the month.

A good credit score is the result of establishing financial responsibility to a number of different agencies over many years. There’s no silver bullet to producing a 740+ mark, but there are small, incremental changes you can make to your life that will produce a solid platform for you to stand upon in the future.

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10 thoughts on “Keys To A Good Credit Score

  • The last bit isn’t entirely accurate. While using a credit card and then paying it off will increase your credit score, what’s more effective is to carry a balance and NOT pay all of it off each month, but to never miss a payment. A credit score is really just an indication of how much money you’re likely to give a credit card company in interest, not of how financially savvy you are.

  • I have been wondering lately about debt negotiation with credit card companies.

    Is there any way to negotiate your debt downward without destroying your credit rating? We have debt of over $20,000, but our credit rating is solid (~760)..

    • You can negotiate, but if the if card company closes your card as a result of the negotiations, your report will say “Account closed by Creditor” or something of the like and you WILL take a hit, however it isn’t a permanent black mark, it’s often temporary. If you’re not buying anything that you will need your credit for, and if you don’t think that you can pay off the $20K weigh the pros and cons of taking the hit versus paying the debt. That amount isn’t so bad. Think of it as you would a new car and then pay it off as if it were.

  • Sadly, I think you’re completely wrong. You’re giving good financial advice but none of it will really help your credit score. My score is currently 752. But I am overwhelmed by credit card debt and have made it my mission to get that debt paid off. By the time I actually accomplish that, it is likely my credit score will then be lower. Just the other day, I took the credit-score-lowering action of cancelling my US Bank Visa card because US Bank has decided to add a $39 annual fee to the card. It made good financial sense for me, but won’t help my score at all.

  • What do you do if you just can’t help yourself, and you are addicted to spending on credit, even if it’s beyond your means? You could also ask the government the same question. 😉

  • A credit score is the key to understanding how creditworthiness is evaluated by lending institutions, as a good credit score can unlock the vault to help obtain financing.

  • I have 3 credit cards that I haven’t used in a long time and really don’t plan on using them, there is no annual fee to keep these open but I just want to get rid of them. My score is 752 and I have a few cards that I use often and want to keep. I always keep balances low and pay them off within a couple of billing cycles and I have never been late on any paymen whether car, mortgage, or cc. How harmful to my score would it be to close these unused cc accounts? How fast could I recover giving the above stated payment trend?

    • I would leave the card that you have the longest and close the ones that you are not using. Once you have closed the cards and it shows on your credit report that the accounts are closed, call the credit card company thank you plan on keeping and ask if they can increase your limit. That way, you don’t decrease the balance available to you, and your credit used to available credit remains the same, and the average age of your credit card doesn’t decrease.

      Your credit score shouldn’t suffer if you do these things.

      Good luck!

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