Don’t buy it if you can’t pay for it
Living beyond your means and purchasing goods and services which you truly cannot afford eventually result in repossession, foreclosure, bankruptcy, and ruined credit. Credit and loans are okay, and ‘wanting-it-now is okay, - as long as you can pay for it later. If not, you can live without it.
Pay off balances every month
When the bills arrive, pay off the balance on all your accounts. Carrying balances costs you in interest payments as well as in credit points. You lose 1 point for every percent of your credit limit that you use. So if you have a total credit limit of $10,000 and have an outstanding balance of $4,000 (40%), your score would be 40 points lower than if you had a $0 balance. Simply put, the more you owe the less your score will be.
Pay on time
Not paying bills when they are due tells lenders how reliable you aren't. If you're 30 days past due and your balance is still unpaid, you can expect your score to drop some 60 points. That could mean a much higher interest rate on current balances as well as future loans you try to obtain. Late payments from your past that you have since paid off will have less and less of a negative effect on your score as time passes, once you establish a pattern of regular, on-time payments.
Keep your credit cards
Many people will suggest to you to cut up and cancel your credit cards once they are paid off or the balances are transferred. While this may sound like good advice, it’s not. Even if you are a responsible, on-time, in-full bill payer, your credit score won't be as high as it could be if you have just one credit account. Lenders actually like to see a potential borrower responsibly managing a mix of revolving debt (such as multiple credit cards) and installment debt (such as a car loan or mortgage). Further, closing credit accounts may increase your debt to credit percentage on accounts that you still have open.
Keep your accounts open longer
Lenders prefer borrowers who have responsibly managed the same accounts for years. For them, this is a more reliable indicator of creditworthiness than a few months of exemplary behavior on a new account. Accounts open less than six months will hurt your score, while those open six months or more neither hurt nor help, and those open at least two years will help your score.
Apply for credit only if you can get it
Every time a lender pulls your credit report, when you apply for a new card or a loan, the inquiry can costs you points. There is an exception if they’re all done within a two week window, in which case they count as one inquiry. If not, your score may be dinged by 5 points with each inquiry. It’s better to apply to several creditors at the same time, to avoid excessive card-hopping, and to apply when you know you will be approved.
Check your credit score yourself
If there are errors in your credit report, all the responsible lifestyle choices you make don’t matter. Lenders base their decisions on what your report contains, and if errors and misinformation go unnoticed and unchallenged by you, no one is there to correct them. You may have had your identity stolen, your spouse may be hiding debt from you, or there may be clerical errors in your report. It’s up to you to order a credit report or to subscribe to a credit monitoring service.
Getting your credit score information and credit monitoring is not free. While you may be able to get a copy of your credit report for free, it will not contain your score from any of the three main credit agencies, and you can only get your report from each agency once a year. To get the whole picture and all your information, I suggest using myFICO credit monitoring service (I believe they offer a free 30-day trial to new customers); it will save you so many headaches if there is ever a problem.
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