Credit scores: why they matter & how to take care of yours

Most people know that credit scores affect your ability to secure credit, but did you know that credit scores can affect your quality of life in other ways as well? Good credit scores qualify you for lower interest rates on loans and credit cards. This means having a good credit score can mean more money for you every month because you won’t have to pay as much in interest to service your debt. Good credit scores can also mean lower insurance rates, saving you even more money every month. Insurance companies use your credit scores to determine your insurance premiums both for both life and auto insurance.

In addition to saving you money, good credit scores increase your ability to secure a rental and even affect your ability to get a job. Credit scores are often seen as a proxy for trustworthiness, which is why property management companies and prospective employers often check your credit before offering you a position or rental contract. This means that bad credit scores could actually close doors for you in addition to costing you money.

Now that you know why you should care about your credit score, here are 5 ways to maintain and improve your credit score.

  1. Check your credit history regularly. Monitoring your credit helps you stay on top of any potential fraudulent activity on your accounts and allows you to catch any mistakes, both of which can negatively affect your credit score at no fault of your own. You can obtain one report a year from each of the 3 credit-reporting agencies at annualcreditreport.com. Create a reminder in your calendar every 4 months to check on one of them to make maximum use of this free credit monitoring opportunity. There are also several other apps and web services that offer credit reporting services for free or for a nominal fee.

 

  1. Autopay everything. Making on time payments on all of your accounts is one of the easiest ways to maintain a good credit score, with 35% of your credit score based on payment history. Autopay is one easy way to make sure you make your payments on time.

 

  1. Pay down debt and apply for (but don’t use!) more credit. The other big factor affecting your credit score is credit utilization, i.e. How much money your owe relative to the amount of credit available to you. Ideally, you want to be using less than 30% of the credit available to you. This means you can actually improve your credit score by applying for more credit. A smaller percentage of your credit score is based on how much new credit you’ve applied for though, so be careful not to rely on this strategy too much. Paying down debt is ultimately the best way to improve your credit utilization.

 

  1. Be prudent about the type of debt you take on. Not all debt is created equal in the eyes of credit reporting agencies. Taking on debt in the form of store and credit cards will more negatively affect your score than mortgage and student loan debt.

 

  1. Maintain your oldest line of credit. The longer you’ve been successfully managing your debt, the better your credit score, which is why it is a good idea to keep your oldest account open, even if you’re not using it anymore.

While all these tips can improve your credit score, they may not be enough if you have bad credit or are just starting out. If you are in one of these situations, you may need to take additional steps before implementing this advice. For example, some banks offer credit cards designed to help people build their credit. Be careful of credit improvement consultants that may charge you a lot of money without really helping you improve your credit. Ultimately, staying on top of your payments and chipping away at your debt load are the most powerful weapons you have against bad credit scores.