Establishing good credit is hard work —
keeping it can be easier with these tips
By now, you know the drill when it comes to establishing your credit history. Pay your bills on time, use credit responsibly, and get better terms on major purchases like buying a car or home.
But what happens next?
Good credit is not a once-in-a-lifetime goal like a top score on your favorite video game; you can’t just break 700, celebrate, and then forget about it — there is no final boss. Your credit history is a lifelong journey, and your credit score can always go down as well as up. That’s why managing your credit is just as important as building it.
Fortunately, there are a few relatively simple steps you can take to make sure you keep your credit — and your buying power — atop the high-score table.
The simplest way to stay up to date on your credit position is to check your score. By law, you are entitled to one free credit report from each of the three primary reporting bureaus every 12 months. As mentioned earlier, that number will always fluctuate a little month to month, but you will be able to notice any major swings that might warrant further investigation.
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Make a plan
Many of the tools you needed to establish your credit will help you maintain it. That includes the foundation of sound finances — a budget. Keep track of how much money you have coming in and how much you spend. Don’t forget expenses that don’t appear on your credit report, like childcare payments, groceries, and utility bills. Lay out your financial goals, both short-term and long-term, and strategize how you’ll save for those larger purchases, like buying a new home. And if possible, build a little cushion for any unforeseen expenses that might pop up in an emergency.
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Also take a hard look at any debt you might have. Limit your high-interest debt, such as credit cards and small personal loans; and steadily pay down your lower-interest debt, like student loans and your mortgage. Remember that having some debt is good, as making those regular payments helps you establish your credit history. But it can be hard to find your financial footing when you are constantly scrambling to pay off the interest on bad debt.
Boost and maintain your score
Once you’ve established a solid credit score (580 to 669 is considered “fair,” while 670 to 739 is “good,” according to Equifax) there is always room to go up. Again, the best way to improve your score is by applying the same methods that got you here in the first place:
• Keep a low balance on credit cards. Don’t “max out” your limits and try to only use 30% or less of your available credit.
• Pay your bills in full and on time, every time.
• Limit the number of credit cards you have.
• Try not to close or cancel the credit cards you already have because decreasing your available credit — even if you aren’t using it — can adversely impact your score.
Keep an eye on your credit
Perhaps the most important way to maintain your credit is to keep a close eye on your score and your credit activity. This not only helps you in the short-term by noticing any inaccurate or incomplete information or any fraudulent activity, such as identity theft, but it also helps you in the long run by helping you better understand your current credit situation and giving you a sense of what potential lenders may see when you come to them.
Once you get your report, look closely at the activity to see if there’s anything amiss and report and dispute any errors. Don’t just look for accounts you didn’t open or other potential fraud, but also be aware of any recently paid off past-due obligations that haven’t yet been updated and contact that bureau to make sure you get rewarded for that hard work. And although it may be a given, make sure that your correct name is what appears on your accounts.
In addition to your credit score and credit history, also keep tabs on your debt-to-income (DTI) ratio. This is the sum of your recurring monthly debt payments (rent, student loan payments, car payments, etc.) divided by your gross monthly income (before taxes). While your DTI doesn’t directly impact your credit, it is an important factor that lenders will consider before issuing you a loan. The requirement for your DTI will depend on the lender and the type of loan you are applying for, but regardless, you want your ration to be as low as possible.
You’ve worked hard to establish good credit — and that’s more than half the battle. Now, just keep doing the things that got you there in the first place to make sure your score and history remain viable. For more information about credit management, be sure to visit www.fanniemae.com/crediteducation.
In addition to your credit score and credit history, also keep tabs on your debt-to-income (DTI) ratio. This is the sum of your recurring monthly debt payments (rent, student loan payments, car payments, etc.) divided by your gross monthly income (before taxes). While your DTI doesn’t directly impact your credit, it is an important factor that lenders will consider before issuing you a loan. The requirement for your DTI will depend on the lender and the type of loan you are applying for, but regardless, you want your ration to be as low as possible.
You’ve worked hard to establish good credit — and that’s more than half the battle. Now, just keep doing the things that got you there in the first place to make sure your score and history remain viable. For more information about credit management, be sure to visit www.fanniemae.com/crediteducation.
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Budgeting the founding of sound finances
Keep track of how much money you have coming in and how much you spend. And don't forget expenses that don't appear on your credit report.