Now that you are debt free, you can concentrate on building your credit score. A good score can help you buy or rent the home of your choice, get you your dream job, and even lower your insurance premiums. Several factors make up your credit score, but maintaining credit accounts over time, keeping your balances down, and making on-time payments all contribute to growing your score.
Resist the urge to close your credit accounts. Yes, you worked hard to pay them off and you'd probably like to avoid the temptation of running your balances up again. But how you use your available credit makes up about 30 percent of your credit score, and the length of your credit history accounts for another 15 percent. Keeping those older accounts open can really help your score over time.
Order your credit reports from all three credit bureaus. You're entitled to one free report from each bureau every 12-month period if you order through annualcreditreport.com. Check your reports for inaccuracies and to make sure that your creditors are reporting your accounts as paid off.
Apply for credit cautiously. Actually, you can skip this step entirely if you have a few revolving credit accounts, such as credit and department store cards, as well as an installment loan. But a mix of open credit lines, including store cards, bank credit cards, and loans, all managed responsibly, impresses lenders and raises your score, according to MSN Money's Liz Pulliam Weston in her article, “9 Ways to Build Your Credit From Scratch”.
Control your use of credit cards and keep balances under 30 percent of your credit limit. Remember, your available credit is a major chunk of your credit score. The higher your balances compared to your available credit, the lower your score. The best way to do this is mentally lower your credit limits: If you have a card with a $2,000 balance, think of the card as having a $600 limit.
Submit your monthly payments on time, every time. Many banks offer free online bill-pay services: You simply tell the bank when and where to send your payment, and it does so automatically. Check your statements each month, though, sometimes creditors change due dates.
- If you find yourself sinking back into the credit card debt trap, seek credit counseling immediately. Credit counselors can help you set up a budget and give you some tips for controlling your spending.
Lainie Petersen writes about business, real estate and personal finance, drawing on 25 years experience in publishing and education. Petersen's work appears in Money Crashers, Selling to the Masses, and in Walmart News Now, a blog for Walmart suppliers. She holds a master's degree in library science from Dominican University.