Credit score management – how to maintain a good credit score

1. Make sure you have a good payment history

The first thing you should do to manage your credit score is to ensure you have a good payment history. You can do this by:

• Paying your debts on time. Even a few days’ delay is bad as the debt carries over to the next payment cycle. 
• If you miss a payment or pay late, catch up on your payments and stay current for as long as possible.
• Don’t allow your debt to go bad. As soon as you realize you are having difficulty paying your debts, contact your lender or seek advice from a credit counselor.
• Set up credit notifications so that you don’t miss any payments.

2. Manage your amounts owed

Amounts owed make up 30% of your FICO score. If you can cultivate financial discipline, you can clear up amounts owed. The tips below will also help you:

• Maintain a low balance on your credit cards. If your outstanding amounts are high, you will get a bad credit score.
• Don’t move your revolving debt (credit card debt) around. Instead, pay it off. Owing the same amount for a long time will lower your score.
• If you need more credit, request a limit increase instead of getting new credit cards.

3. Do not open multiple new credit accounts

Opening multiple credit card accounts is never a good thing, especially for new debtors. This is because every new account lowers the average age of your account.

Use these tips to manage new credit:

• If you open new accounts, pay them off responsibly.
• Avoid too many “hard” credit inquiries. Hard inquiries take place when a lender is assessing you for new debt. These inquiries show up on your credit history report. If you want to shop around for a loan, do so within a short period so that it counts as a single inquiry in your report.
• Checking your own report is known as a soft inquiry and won’t impact your score. This is because FICO considers checking your credit as good debt management practice.

4. Reduce the amount of debt you owe

Reducing the amount of debt you owe will not be an easy task. However, your motivation to do so should be in the financial freedom you will achieve once debt free. Not to mention, it will impact your FICO score positively in the long term. How do you accomplish this?

• First, don’t make any more purchases with your credit cards.
• Next, get a credit report from your credit score provider. Determine how much is outstanding for every account and the interest rate on each account.
• Start paying off your debt, with the high interest rate debts first, and moving on to the next account until you finish. All the while, make minimum payments on the other accounts.

5. Keep your credit card accounts open

Closing open credit card accounts increases debt to credit ratio, because it lowers the amount of credit available to you. Even after you pay off debt, do not close the accounts.

After you get to zero balance, spend a small amount and pay it off at each month’s due date. This will prevent your cards from going dormant (which also attracts fees). Lenders automatically close dormant cards.

6. Watch debt to available credit ratio

The smaller your debt proportion is to your credit, the better it is for you. For example, if you owe $10,000 but your available credit is $100,000, this will not affect your FICO score as much because you have only borrowed 10% of your available credit. On the other hand, if your available credit is $20,000, your score will be affected as you will have borrowed up to 50% of your available credit.

Senior policy counsel for Consumers Union, Pamela Banks, advises that paying your balances and keeping them down will boost your score. Keep your debt at below 20% of your available credit.

7. Ask for annual credit reports

You can access free credit reports annually from any of the credit score providers mentioned above. Checking your credit reports regularly will help you catch any irregularities in your account. Opening an account with a credit score provider will give you unlimited score access.

Conclusion

If you have a good credit score, the tips above should help you to keep it that way or make it better. On the other hand, if you have a bad credit score, it will take you some time to repair it. The only way to do so is to manage debt responsibly over a long period of time.