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The hard part about building and managing credit is that it’s an ongoing process. You can’t just spend time to build credit, reach a certain score, and stop. Every interaction you have with credit cards and loans has the potential to impact your credit history and your credit scores.
Maintaining a good score takes some work, but if you build good habits you can make the process much easier.
One of the best things that you can do to maintain your good credit score is to keep an eye on your credit report. There are two primary reasons for this.
One is that it helps you see how your actions affect your score. Credit scores fluctuate, so you shouldn’t worry about a change of a few points, but if you see your credit score start to dip by ten or twenty points that might be cause for concern.
Checking your credit regularly gives you real-time feedback on how your actions are impacting your score and gives you a chance to change your habits before they have a major impact on your credit.
Another reason to keep a regular eye on your credit report is that it helps you identify fraud and mistakes before they become serious issues.
If you see a new account appear on your credit report, you can report it to the credit bureaus and the lender immediately. If an account appeared on your report in error, you’ve stopped someone else’s actions from unfairly affecting your credit. If someone opened the account without your permission, you’ve gotten a head start on fighting the identity theft and can take further steps, like filing a police report.
There are many ways to keep track of your credit report.
AnnualCreditReport.com is a government-approved website for requesting a copy of your credit history from each of the major credit reporting bureaus (Experian, Equifax, and TransUnion). By law, each bureau must provide you with one free credit report report each year.
You can also sign up for a service like Harvest Platform. These services give you more frequent updates on your credit report that use non-FICO scoring models, like the VantageScore, to produce a credit score that you can track over time and how it relates to your financial health with the PRO Index. You can also go into detail on the factors influencing your score so you know where to improve.
Many credit card issuers, like American Express, Discover, and Capital One also let cardholders view their credit score as a perk of having a credit account with them. If one of your cards offers this perk, it can be an easy way to track your credit.
Once you’ve built a solid credit history, there are a few ways that you can significantly damage your score.
The easiest ways to hurt your credit are to take on too much debt and to miss payments on your bills.
That means that one of the best things that you can do to avoid bad credit is to limit how much debt you have. This includes both credit card balances and other lines of credit, such as auto loans, student loans, or personal loans.
If you use a credit card, which is often a good idea because of the rewards they offer, you should treat it like a debit card. Instead of using the card to buy things with the intention of paying for them later, use the card only to make purchases you can already pay for to avoid going into credit card debt, which typically is some of the highest interest debt.
If you follow this rule of thumb, you’ll never have to carry a balance from month to month. This will both keep your debt low, helping you maintain your credit score, and avoid interest charges.
When it comes to making large purchases, do what you can to minimize the amount you have to borrow. If you want to buy a home, try to save up enough money to make a full 20% down payment. This reduces the amount you have to borrow and can save you from having to pay PMI.
If you’re buying a car, consider paying cash for a less expensive used car or getting a smaller loan to buy a new vehicle with few bells and whistles.
While you shouldn’t be afraid of borrowing money where a loan can help you achieve your financial goals, maxing out your credit limit and taking on huge amounts of debt is one of the main ways to crater a good credit score. Just because you may qualify for access to available credit does not mean you should use it.
Related to keeping your debt low, one of the best ways to keep your credit score high is to always pay your bills, especially your credit card bills, in full and on time.
With credit cards, it can be incredibly tempting to use them to spend more money than you have in your bank account. You can carry a balance from month to month, so as long as you make the minimum payment, there won’t be any harm, right?
While it’s true that making the minimum payment is sufficient to keep your payment history clean, carrying a balance from month to month is a bad thing to do.
Credit card interest rates can be enormously high and you’ll be surprised by how quickly your balance will grow.
Consider this example:
You have a $750 balance on a card charging 15% APR and a minimum payment of $30.
If the card had no interest, you’d make 25 monthly payments of $30 to pay off the balance. Because of the interest, you’ll instead have to make 55 monthly payments and pay a total of $997.92 to pay off the balance.
Carrying a relatively small balance and making just the minimum payment adds almost three years to your debt repayment schedule.
If you carry a balance for one month because you spent more money than you had in your bank account, what’s to stop you from doing the same in the next month and the month after that?
Over time, your balance (and credit utilization ratio) will only grow, dropping your credit score and making it more difficult to meet the minimum payment each month.
Getting into the habit of always paying your balance in full, by making sure you only spend what you can afford to spend, can help you avoid this cycle that can damage your credit.
A good strategy is to sign up for automatic bill and credit card payments. This saves you from having to remember to make a payment each month and lets you truly treat your credit card like a debit card. You can also use Harvest Platform to set up alerts for payment due dates to avoid late payments.
Good credit is an ongoing process. You can’t just take steps to build a good credit history and forget about it. You must make sure that your interactions with credit and debt remain positive.
The two most important factors in determining your credit score are your payment history and the amount you owe (both in absolute terms and in terms of your credit utilization rate). Taking steps, like setting up automatic payments to avoid damaging your payment history with missed payments and avoiding new credit when you don’t need it, will help you keep your credit score strong.
TJ Porter is a Boston-based freelance writer who specializes in bank accounts, credit, and credit cards. He’s written for Bankrate, Credit Karma, MoneyCrashers, DollarSprout and My Bank Tracker, among others. In his spare time, TJ enjoys cooking, soccer, reading, and video games
Harvest helps increase the net worth of the 99% through artificial intelligence and financial automation. To date, Harvest has refunded over $2M in bank fees and interest charges to its members with the ultimate goal of increasing the net worth of everyday Americans by $1 trillion by 2030. Our platform starts with providing immediate relief through bank fee and interest charge refunds, orients a member's financial health with our proprietary PRO Index™, and keeps track of net worth over time aided by our suite of financial tools. Check out our 8-step guide on "How to Build Wealth from Nothing" to get started on increasing your net worth.
Disclaimer: Harvest is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.