Once you’ve taken the time to repair a bad credit score or build up a good one, you’ll still need to put some effort into maintaining this crucial number. Simply getting your score to a solid spot isn’t enough, as any number of wrong moves or poor choices can end up pushing it right back down, making all your hard work for naught.
If you’re a first-time homebuyer or you’re just dipping your toes in the home-buying waters, having good credit is crucial to ensuring you get approved for your mortgage as well as receive a lower interest rate.
Keep these handy tips in mind to help you maintain a good credit score:
1. Track your spending habits
It can be all too easy to swipe your credit card a few too many times in a month. While using your credit card and paying it off as soon as possible will help you maintain a beneficial credit rating, be sure not to get carried away by spending more than you make. After all, the higher your outstanding balance, the lower your available credit – something that credit reports take into consideration when calculating your score.
Be sure to keep in mind the “20/10” rule. This means don’t let your outstanding balance reach higher than 20 percent of your total yearly income after taxes. So if you make $40,000 a year, you should try to keep your debt around $8,000 or lower. Further, each month, try to keep your credit card payments at or below 10 percent of your monthly take-home pay.
It’s important to keep your outstanding balance low to maintain a good credit score.
2. Sign up for automatic payments
Signing up for automatic payments can be a tricky balancing act. On the one hand, it ensures that all your bills are paid on time – which helps maintain a good credit score. On the other hand, if you don’t have the money in your bank account to cover the bills, you can end up overdrafting and paying a fee – which can potentially negatively impact your credit score. But with some careful planning and regular reviews of your accounts, this practice ensures you never make a late payment again.
3. Limit your credit applications
Now that you have a solid credit score, you might be tempted to sign up for some new credit cards. While a good credit score should qualify you for lower interest rates, be careful about how many new ones you obtain.
“Be careful about how many new credit cards you obtain.”
Every time you apply for credit, be it a car loan or a credit card, the company or lender will perform a credit inquiry. Credit inquiries can account for as much as 10 percent of your score, and each request can put a dent in it, noted The Balance. Say you have a score of 800 – a 10 percent hit would bring you down to 720. While that’s still a good number, it’s considerably less than where you could be if you hadn’t applied for a new card. It’s wise to only apply for credit that you absolutely need.
4. Keep an eye on your credit report
Even if you do everything right – pay your bills on time, limit your credit applications, and so on – it doesn’t mean your credit score will stay high. Sometimes an error ends up on your credit report unbeknownst to you. This can arise from credit card fraud, identity theft or a simple mistake on the part of the credit agency. By regularly reviewing your credit report, you can identify any sort of potential errors on it and get those fixed as soon possible.