If you may have been guilty of one or more of the seven sins of credit card management, it's important to learn about the virtues. People with an excellent credit report usually achieve a score of 720 or higher, which allows them to have more flexibility in choosing what kinds of credit to have. Such scores afford consumers a better chance of achieving their financial goals, like owning a house. With all the tools creditors have to calculate your credit worthiness in mind, it might be helpful to learn about the habits people with good credit have.
Here are things people with good credit scores have in common:
1. Maintains a Good Utilization Rate
Credit card utilization rate is one of the biggest factors that will influence your overall credit score. Creditors will look at your credit card utilization rate – a percentage of your total balances compared to your credit limit – and decide whether you are responsible with using and paying off your cards. A 0 percent rate means you are not using your credit at all while a 100 percent rate signals to creditors you are overcharging your cards. People with good spending habits have a 30 percent utilization rate or lower, showing they are using their cards in moderation.
2. Pays Bills on Time
In building a solid relationship with creditors, those with great credit scores have an established history of paying bills on time and tracking their spending. These bills include utility bills, mortgage payments and other credit obligations. Paying bills on time is crucial to showing creditors you are responsible and reliable. This is also true when it comes to credit card payments. While you have the choice of paying the minimum on your credit card bills, it might be better for your financial health to pay off your credit card balances each month.
3. Balances a Mix of Credit Types
While you may have one or many credit cards, you need to enrich your credit history with other kinds of credit. Supplement your use of credit cards, which are known as revolving credit, with other credit types, like personal loans or an auto loan. Loans where you pay a certain amount each month is known as installment credit, which creditors will look for along with revolving credit when deciding whether to approve you for new credit obligations. Having a mix of these credit types indicates to creditors that you can handle various forms of credit, including the kinds you are applying for.
4. Keeps Oldest Credit Lines Open
The age of your credit history is also a significant determinant of your credit score. This is calculated by the average age of your financial accounts. A drop in the average age of your accounts could bring down your overall credit score. Rather than close credit cards you think you don't need any more, make sure to keep these credit lines open, especially if they are some of the oldest listed on your report.
5. Has Low Balances and Lower Debt
People with desirable credit scores often do not have to worry about an overwhelming amount of debt, which could help them in their financial decision-making and avoid bad spending habits. Be sure to have a low balance on your credit cards, which will also aid in having a good credit card utilization rate, as well as other credit obligations. Debt plays a big role in determining approval for certain lines of credit. Lenders in charge of approving applicants for mortgages will have to see whether you have too much debt to reasonably pay your home loan payments each month. Additionally, having small balances on loans and credit cards is critical to managing your debt and prevents accounts from going into default or collections.
6. Looks Actively for Errors
While you may have an established credit history with a mix of credit types, there's still a chance of errors making an unwelcome appearance on your report. There may be items in collection that were already paid off or evidence of suspicious activity that signal identity theft or credit card fraud. Mistakes small and big can make a huge impact on your credit worthiness so it's important to get these taken care of fast before they do major damage. Request your credit report from the three major credit reporting companies and look for anything that looks unusual or inaccurate and get started on repairing your history.
7. Asks for Financial Advice
While you may already consider yourself an expert on maintaining a good credit score, it's still necessary to get an outside perspective on the performance of your credit history. Expert help may be able to point you in the right direction toward improving your score and aid you in achieving your financial goals. Through taking the opportunity to ask for advice, you could also be better equipped to handle mistakes or errors that show up on your credit report.