I know you understand the value of your credit score and its relationship to your financial well-being. You also understand that a good credit score is the gateway to financial freedom, reduces financial stress, and provides a safety net to rely on throughout your life.
Because an excellent credit score offers these valuable benefits, I want to share these 6 key proactive measures you must take to keep your excellent credit score intact. I also include the rationale for taking these proactive measures, knowing you will be more likely to follow through if you understand why they are important.
- First and foremost, make payments to your creditors on-time. Not all creditors report to the credit bureaus, but most unpaid debts will eventually land in the lap of a debt collection agency, and they will report your failure to pay to the credit bureaus. In short, maintaining your credit score depends upon you paying all your bills on time.
- Good debt management is the another key to maintaining a high credit score. The less you owe, the easier it is to pay and pay on time. Borrow for necessities only. Borrowing for things you want but don’t really need can lead to financial disaster. Your total indebtedness must be held to a minimum relative to your income. Debt levels are responsible for 30% of your credit score, so keeping debt to a minimum is a must.
- Inquiries represent roughly 10% of your credit score. When you apply for credit, that creditor will make an inquiry with one or more of the three credit reporting agencies. If you apply for an auto loan through the finance office of a dealership, your application is typically “shotgunned” to multiple lenders. As a result, your credit report is hit with multiple inquiries. If you go to more than one dealer, the effect snowballs. Department stores will try to lure you into applying for the store credit card in exchange for a discount on your purchase, or some similar perk. Inquiries lower your credit score. A lower score means that when you borrow, you will pay a higher rate of interest. No store discount or perk is worth paying increased interest rates!
- Monitoring your credit report is absolutely essential. You don’t want to learn of erroneous information in your file as the result of having your credit application declined. Be proactive! Review your reports for errors on a regular basis. Three times per year is probably sufficient, but you must do this. The credit reporting agencies do make mistakes! Creditors can also make errors when they transmit information to the credit reporting agencies. A regular review affords you the opportunity to catch these errors and challenge them. The reporting agencies must investigate and respond within 30 days or remove the information from your record.
- Credit card balances should be maintained at levels well below your actual credit limit. Ideally, your closing balance should be around 30% of your credit limit, so if your Visa has a $1500 limit, your closing balance should be kept to around $500.
- Closing out credit card accounts that you no longer use is not a good idea. Doing this results in the creditor discontinuing the report to the credit bureaus. This has the effect of shortening the length of your credit history. Length of history affects your score. It is better to leave the account dormant than to close it.
So there you have it. Six key proactive measures you must take to maintain your high credit score.
Now, would you believe, in cooperation with a certified dietitian and a renowned physical therapist, it was determined that the calories burned in the execution of these proactive measures, equate to a 15 pound weight loss over a twelve month period? You wouldn’t? Okay, I might have misled you … a little, but for good cause! I want you to enjoy the financial rewards that a good credit score brings in the form of lower interests rates, rapid approvals, and the peace of mind that comes with knowing emergency funds are always available.
What do you do to lose weight and to maintain your credit score?