A credit score may seem confusing to first-time credit card holders. But those three digits hold high value for someone who is going to apply for a mortgage or any other type of loan. If you just got your first credit card, maintaining a good score is not as hard as you would think. As long as you keep your level of debt down and pay off your balances on time, you'll be right as rain. Here are a few credit tips that can help you build and maintain your score:
Look at your credit report often
A great tool to help you keep your credit score intact is your credit report. This document will have a comprehensive rundown of all your debts and payment history. It is a good idea to check your report often because you never know if there will be a mistake. An error such as a collection notice for a debt you never had will hurt your score, and then you'll have to work twice as hard to repair it. You're allowed a free credit report every year, and it would be in your best interest to check it.
Avoid closing cards
When you pay off one of your balances, you might think that closing this account is a good idea. But shutting down an account will serve no purpose in your quest to repair your credit score. Doing this will raise your credit-utilization ratio, which is your total outstanding balances compared to your combined limit across your accounts. This ratio is a major part of your credit score, and a higher one will do you no favors. If a financial institution sees that you regularly use up a good portion of your available balance, you may be denied another card or loan. You probably aren't ready for more than one card right out of the gate, but you should still take this advice into consideration.
Understand the terms and conditions
As you're meeting with a bank or other lender about getting a card, it's important to read through all the terms and rules that go along with it. This is imperative because there may be some terms you're not familiar with, and you could end up hurting your score in the future. This can occur by not understanding processing fees or interest increases for constant late payments. Make sure you know the payment schedule, your interest rate and the fees and penalties you may have to pay.
Check your monthly statements
When your monthly credit card statement becomes available through your bank's website or the mail, look over this document thoroughly. Checking out your statement each month is a great way to understand your spending habits and see if there have been any fraudulent purchases. Thanks to the Credit CARD Act of 2009, statements are now reader friendly.
Swipe your card only when you need to
Using credit to pay for things is a privilege, so don't spend it on everything you see. Try to keep your charges reserved for small purchases such as filling up your gas tank or buying a meal for yourself once or twice a week. This way, you can build up credit wisely and won't have to worry about getting into too much debt.
Maintain a good payment schedule
After you have used your card, pay it off as soon as possible. You'd be surprised how much your balance runs up if you're not paying attention. Also, make your scheduled monthly payments on time. Payment history is an important aspect of your credit score, and if you're late, you could get a fee and see your score drop.