With good credit, you may qualify for more loan programs and you could pay less for mortgage insurance. Hiring managers and landlords may also request your credit report, so poor credit could affect your chances at getting a job or an apartment.
“If you have good credit, you have more options,” said Ryan Niesent, a regional mortgage manager at First Interstate Bank.
Federal law allows you to get a free copy of your credit report every 12 months. It’s good to get in the habit of checking your credit report to make sure the information is correct and up to date. The Federal Reserve recommends going through annualcreditreport.com, where you can get your free credit reports from Equifax, Experian, and TransUnion.
The credit reporting companies each combine information about businesses that have given you loans or lines of credit, the amount of each loan or credit card limit, how often you paid on time and how much you paid, and any missed or late payments. They might also include how often businesses have requested your credit report as well as bankruptcies or other public information.
So you’ve seen your credit report, and it’s not great. Now what?
Pay off your credit card bill every month.
Credit cards are revolving credit, meaning the money is borrowed against a credit line and doesn’t have to be paid back in full each month. However, to maintain good credit, you should pay your credit card and other revolving debts down to zero each month.
But don’t close your credit card.
A long history of keeping your credit balance low and paying off your credit card each month helps your score. Closing a card you’ve paid down consistently can actually lower your credit score.
Don’t max out your credit limit.
A high credit balance will also lower your score. Aim to keep your revolving debt to 30 percent or less of the maximum credit limit. Once you go over 30 percent—even if you’re making an on-time, full payment—your credit score will be negatively impacted, Niesent said. So, if you have a $5,000 limit on your credit card, you would want to keep your balance below $1,500.
Pay your bills on time.
Late payments reflect poorly on your credit report, but the one bill you never want to have is a late payment on a mortgage, Niesent said. “A mortgage can build your credit really well, but it can also wreck your credit pretty quickly.” To avoid missing a payment or paying late, set up automatic, recurring payments for the bills that are the same each month.
Limit the number of times your credit is pulled.
When you apply for loans or lines of credit, the business or financial institution will pull your credit report. Too many credit pulls and it can look like you’ve recently had a negative change in your financial situation. So don’t apply for credit cards you don’t need, and when shopping for a home loan, narrow down your options to just a couple of lenders who will pull your credit.