The good news is that your credit score health isn’t out of your hands. There are pretty simple things you can do – and things you should avoid doing – to help you control your credit.
1.Pay your bills on time
Paying your bills on time lets lenders know that you are committed to wisely and responsibly handling your current and future debt. Many people think that as long as they’re paying, it doesn’t matter if the payments are late. However, paying on loans or bills late not only costs you extra money in fees, but creditors view late payments as your first step toward not paying at all, and this makes them wary.
Tip: Consider setting up automatic payments with your bank so that you never forget to pay on time. You can also talk to your various lenders and ask to make payments on a certain day of the month that works better for you. Look at your payment schedule and your payday schedule and create a plan that makes sense and will help you never miss a payment.
2. Don’t max out your available credit
Not using all of your available credit tells lenders that you still have sufficient access to credit if needed and that you’re unlikely to need additional funds from another source. The closer your debt reaches your credit limit, the more your credit is impacted.
Tip: Keep a close eye on your debt-to-available credit ratio. A good rule of thumb is to not exceed 30 percent of your available credit limit. If you have exceeded that, concentrate on paying more than the minimum balance every month so you can get ahead and pay your debt down to a more manageable amount.
3. Hold accounts for long periods
Having a long history with accounts lets your current and potential lenders know you can be trusted with your debt and that you’re a stable borrower, rather than an erratic one. Closing a line of credit, particularly a credit card, doesn’t improve your credit score but can in fact damage it, and having open lines of credit that aren’t maxed out can help your score.
Tip: Instead of closing paid-off accounts, consider keeping them open with no outstanding debt. This can help you maintain open lines of credit while also improving your debt-to-available credit ratio.
4. Avoid default
When you stop making payments for a prolonged amount of time on any type of loan or bill, your account goes into default. This alerts lenders that you aren’t a responsible or reliable debt holder - not only do you have outstanding debt, creditors may believe you also can’t be trusted to pay back any future debt you might accrue. In addition, depending on the type of loan or bill you’ve defaulted on, the entity you owe can take legal action, which can lead to garnished wages and loss of financial control on your part.
Tip: Instead of stopping payment altogether, talk to your lender to see if you can lower your monthly payment to an amount you can afford so you can, at the very least, get out of default. Then you can work your way up to paying more and more off each month until you’re debt free.
These are just a few of the many factors that can influence your credit score, but there are things you can do to help you take control and steadily build a stronger credit history. Managing your debt and maintaining a healthy credit score may seem like a lot to handle at times. Fortunately, there are a number of ways to make a comeback — it’s your responsibility to take advantage of them.