Having a great credit score can truly benefit you -- let us count the ways. Not only will you qualify for lower interest rates on credit cards and loans, but you'll also enjoy peace of mind knowing that if you needed to borrow money, you shouldn't have much trouble at all. But just how do those with near-perfect credit scores achieve and maintain this coveted distinction?
Thomas Nitzsche, a National Foundation of Consumer Credit–certified financial educator and media relations manager for ClearPoint Credit Counseling Solutions, says accepting the difference between "needs" and "wants" allowed him to clean up his own credit history. He explains:
In my 20s, I sometimes used my credit cards for things I wanted and couldn’t immediately pay for. My thought was that I would have the money by my next payday or the payday after that. But that way of thinking was rarely in line with reality.
Over time, the balances increased to the point that I was just barely paying more than the minimum payment. Because of this, most of the payment was going toward interest and I found myself unable to pay down the debt. I was also beginning to damage my credit score because I was above the best debt-to-limit ratio (also known as credit utilization).
We've all been there, haven't we? FICO scores range from 300 to 850, with the high end indicating the lowest risk to lenders. Typically, anything over 750 is considered good. But keeping your score on the upper end of that scale isn't always as easy as it might seem.
So, just how can you turn a plummeting credit score around? Nitzsche and financial expert Harrine Freeman, author of How to Get Out of Debt: Get an "A" Credit Rating for Free, shared their top tips for saving a troubled credit score.
- Never miss a payment or mail a bill in late.
- Keep no more than six or seven open accounts.
- Avoid transferring balances.
- Keep balances well below their limits.
- Have a diversified portfolio of revolving and installment lines of credit.
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- Do not close any old accounts that are in good standing.
- Reduce your debt-to-income ratio to 25 percent but no more than 28 percent.
- Pay down other debt to at least 50 percent of the balance.
- If you need to apply for credit, only open one new account per year.
- Check your credit reports for errors at least three times a year or at least three months prior to a large purchase at Annual Credit Report.com.
While these steps aren't always easy to take, once you see your credit score start to turn around, it will all have been worth it!
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