Credit Smart “Do’s and Don’ts”

Most of us have a pretty good idea of the basic credit behaviors that will keep our creditors happy and our credit scores on track (even if we don’t always practice them). Pay your bills on time, don’t take on too much debt – you get the point. But did you know that a simple change in your credit card balances can raise or lower your scores? There are lesser-known financial behaviors that can affect your credit score (for better or worse) more than you may realize. Knowing your scores is important, understanding what to do (or not do) is critical.

Here are 10 tips worth sharing!


1. DO focus on your payment history and amount owed.

These two categories have the largest impact on your credit scores. Making agreed-upon payment amounts on time is good and expected. Making those payments early is better, and could have a positive impact on your scores if they lower the total balance on those accounts. The amount owed across your various accounts is a risk indicator. Higher amounts on all accounts could be a red flag that you are overextended. Conversely, lower balances with a significant amount of credit available is an indication that you manage and repay debt wisely.

2. DO monitor your credit utilization.

One of the main factors that affects your credit scores is your credit utilization rate, which is the amount of your outstanding balances on credit cards and lines of credit in relation to your credit limits. The higher your credit utilization rate, the lower your credit scores. If you’re close to maxing out your available credit limits, it is a warning sign to lenders that you may have trouble managing your money and are more likely to pay late, miss payments or default on your debts. If you want to maintain stronger scores, keep lower balances and don’t push your limits!

3. DO pay down the credit card closest to its limit first.

If you have cards that are maxed out or pushing their limits – pay those down first. Throw extra money every month at the card closest to its limit. It all goes back to your credit utilization rate. Remember, pushing your credit limits hurts your scores – so put more daylight between your outstanding balance and your credit card limit.

4. DO negotiate your credit card interest rate.

Consumers with excellent to outstanding credit should call their credit card company and seek more favorable rates on high-interest cards. If you have been a long-time customer in good standing, you could succeed in lowering your rate. So, before you open a new credit card to get that lower interest and higher limit, call your existing credit card company and ask for the same terms. As a valued customer, the odds are good that they will work with you! It never hurts to ask.

5. DO prepare for major purchases at least four to six months out.

This allows you to maximize your credit scores to get the best interest rate available. First, pull your credit reports from TransUnion, Equifax and Experian and review your credit accounts thoroughly to see what’s driving your scores. Second, identify ways to improve your scores, which will improve your purchasing power. Dispute errors, particularly payment mistakes, and look for ways to decrease your debt, especially on revolving accounts such as credit cards. The higher your scores, the better the interest rate you can command.


6. DON’T close old credit cards.

While it may seem like a smart idea to “cut up the plastic” and close out old credit cards you don’t need or use anymore, it can actually hurt your credit scores. The length of your credit history (age of your credit accounts) makes up 10 percent of your overall credit score. A longer credit history improves your scores – and shows lenders you have experience managing your credit. Consider what the account means to your total credit profile – such as total credit available, credit utilization, and any amount owed on the card – before you decide to close it. So, older accounts in good standing are better!

7. DON’T apply for multiple credit cards at the same time.

Resist the temptation to open new retail store cards to get discounts at the register. Having a slew of new credit inquiries hit your credit reports within a short time period is a red flag to lenders indicating that you may have financial trouble and are shopping for credit. Be strategic about when and why you apply for credit. Opening multiple new accounts can cost you a lot more, in terms of lower credit scores, than they will save you.

8. DON’T transfer balances from multiple cards to max out one. 

In the last few years, everyone’s gotten a bit transfer-happy. And while it may seem like a smart move to save money on interest, transferring several balances to one card will drive up your credit utilization for that card – and drive down your credit scores. In general, it’s better to have several cards with smaller balances than a single card with a big balance that’s at or near its credit limit.

9. DON’T apply for more credit in advance of a major purchase.

If you’re planning to apply for a mortgage, car loan or finance any other big-ticket item, don’t apply for any credit cards or lines of credit before you’ve signed on the dotted line and have the keys in hand! New credit inquiries and new accounts hitting your credit reports while you’re trying to get loan approval will impact your credit scores and make lenders wary.

10. DON’T hide from your creditors if you’re in a financial pinch.

For many of us, an unexpected car repair or medical expense can throw off our monthly budget. The best thing you can do is call your creditors before payment is due, explain your situation and tell them when you’ll be able to make your next payment. Some may waive late fees and others may allow you to make partial payments until you’re back on your feet. The worst thing you can do is nothing! Just one skipped payment will affect your credit scores. And if you miss two payments (60 days late), you could see the interest rates offer to you on credit cards skyrocket to higher rates.

Boosting your credit smarts can help you make better-informed decisions now and in the future!

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