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5 Essential Tips for Managing Your Credit Score

Your good credit enables much more than granting you amounts of money you can spend and pay back over time. It follows you into everything from renting an apartment to getting a job. It determines the interest rate you will pay on credit cards, financing and loans. It can even alter how much companies charge you for things such as insurance or cellular phone service. A low score can even result in you paying deposits for public utilities and other services or require larger down payments on loans. Here are five tips to manage your credit score.

On Time Every Time

A single late payment of a few days may not result in any credit backlash. Keep in mind, however, that many companies have no grace period. If a late payment shows up on an account, other creditors may respond. If you make a late payments on credit cards, you are throwing away money in the form of higher interest and late fees. Plus, that lender and other credit card lenders may respond by lowering your credit limit drastically. Any late payments of any kind may be reported to a credit bureau. Do not risk it. If you regularly pay on time and fail to do so for some reason, contact the company immediately. If you haven’t had any problems before you can ask them to remove the interest and penalty and sometimes they will for your first offense.

Watch Your Available Credit

Your income determines an amount that lenders will consider good use of credit. The credit reporting agencies will look at how much available credit you have versus how much you are using. If you have a new car loan, a mortgage that is only a few years old and maxed out credit cards, you may end up with a low credit score even if you make every payment on time. This is because you have used up all of your available credit. If you pay off the credit cards, it shows available credit. This bumps up your creditworthiness.

Open New Accounts Slowly

It is tempting to go wild and open new credit accounts when they are offered to you. You may only intend on using those no fee credit cards or store credit cards in an emergency, but the new accounts affect your credit. Each time you open a new credit account, the credit reporting agencies that manage your FICO score are notified. Too many new accounts in a short period of time is a red flag. If you are just starting out, do not open more than two credit accounts in a year.

Know Your Credit Score

FICO is an acronym for Fair, Isaac and Company. Two guys named William Fair and Earl Isaac started a company back in 1956 that would provide a way to do credit scoring. It was a standardized way of assessing credit risk. Your FICO score is based on a number range from low to high with high number meaning you are less of a risk when it comes to lending you money. There are different low and high numbers depending on the model used, but higher is always better.

Fortunately, many banks and credit card providers today provide a free glimpse at your credit score. This is a nice way to monitor your credit. To know if you are on track with a healthy credit score, you may wish to subscribe to a credit monitoring service such as CreditKarma. Companies like this allow you can track your score anytime you please. Each service has a range that indicates if your credit score is poor, fair, good or excellent. Always shoot for keeping it in the excellent range.

Keep Accounts Open

If you are tempted to use a credit card, store credit card or an open offer from a financing company for things you want now and do not want to wait for, you may decide to close credit accounts to prevent using the available credit. This can harm your credit score. If you are not paying any fees for the accounts to keep them active, you might want to consider destroying the physical cards. This can be especially helpful if you’re trying to avoid excessive spending.

This way your credit score does not take a hit for closing open accounts, and you cannot easily use the available credit. If you cannot resist, it may be better to just close a credit account and take the FICO hit. That is better than increasing your credit debt.

Pro Tip

If you are considering becoming an investor in a business you may be just as concerned about their credit health as you are your own. Unfortunately, monitoring a company’s credit score isn’t usually as straightforward as monitoring your own. If you are a casual investor your easiest option is probably to listen to the businesses quarterly earnings reports and stay up-to-date on current events related to them and their future plans. If you’re trying to become more serious in the world of investments, however, there is another tool that’s definitely worth considering.

Professional risk monitoring services like CreditRiskMonitor and similar businesses provide a service that is invaluable to professionals in the world of finance. Unlike a personal credit monitoring company, these professional services perform in-depth financial analyses of public companies. They’re usually not free, which makes it something that isn’t cost effective if you are only watching one or two small investments.

Above everything else, do not tie up too much of your income in paying off long-term debt. Out of your paycheck you should be able to buy the things you need to live, pay your rent or mortgage, pay your car payment, repay student loans and put money into your retirement plan. The top advice that so many continue to ignore is to live within your means, and do not rely on credit in an attempt to live a more lavish lifestyle. This can lead to financial insolvency that ends in bankruptcy court.

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