8 Steps to Good Credit

Step 1: Pay Your Bills on Time

Make it your personal goal to pay your credit and other obligations on time and for the required amount each month.

Debt obligations will include:

• Credit card charges
• Loan payments
• Rent or mortgage payments
• Utility bills
• Service or product bills
• Taxes
• Support payments
• Other

Take advantage of automatic payments and other online bill payment strategies offered by lenders and credit card issuers. This will ensure timely payments.

If you forget to make a payment, act promptly on any notices of non- or late payments. Call the bill servicer to notify them that your payment will be sent immediately.

Do not ignore any creditor notices of non-payment. Contact the creditor to fix the problem.

Step 2: Build a Strong Payment Pattern

Adverse conditions such as late or non-payments are two of the most common items that are reported to the credit agencies. You can avoid adverse conditions by making on-time payments.

Your credit report will also list all open credit cards and loans, listing the amount borrowed and the amount owed on the account.

Your objective is to build a pattern where you pay off large credit card balances in full each month. This pattern conveys a sense of responsibility for your debt obligations.

You can build a strong payment pattern by charging everyday living expenses on your credit card, deducting the charge from your money account, and then paying off the monthly credit card charge in full each month with your money deductions.

Note that you need to follow these rules before you can undertake this credit payment pattern:

1. You must set aside funds for every credit card purchase you make.
2. You must pay your credit card balance in full each month.
3. You must have an existing credit line or home equity line (with lower interest rate) to finance large ticket items. Never finance purchases with your credit cards.

Step 3: Maintain only a Few Credit Cards

As your credit rating improves, you will soon receive pre-approved offers from credit card companies and lenders with attractive rates and programs.

You should limit your credit to three to four cards only. Maintaining a large collection of cards can hurt your credit rating.

Step 4: Close All Retail and Gas Cards

Since you maintain three to four major credit cards (e.g., VISA, MasterCard, Discover, or American Express), it isn’t necessary to hold gasoline cards, retail store cards, and other specialized credit cards. Simply use your major credit cards. Again, holding multiple cards can drag down your credit score.

Step 5: Don’t Have Too Many Outstanding Loans

Excessive loan balances (especially loans that exceed your Debt-to-Income ratios) can effect your credit rating. Maintaining a good credit rating requires that you reduce your debt holdings by consolidating balances, closing unused credit card accounts, and paying off outstanding loans.

Step 6: Avoid Charging Close to Your Credit Line Limit

Don’t use your credit card up to your maximum credit line balance because this can negatively impact your credit rating.Maximized credit lines (including home equity lines, credit cards and unsecured credit lines) indicate that you are a consumer who borrows willingly. Many lenders consider this a great risk and may not approve you for additional credit. A good rule to follow is to keep your balances at or below 60 percent of the available credit line.

Step 7: Review Your Credit Report Annually

About one in four credit reports have errors. Either a payment on a loan amount has not been recorded correctly or another billing company has posted incorrect non-payment information to your account.

Your credit report also maintains records on your employment, salary, bank accounts, etc., especially the information that you supplied when making a previous credit application. You should review your report annually for errors and make the necessary corrections as instructed by the credit agency.

Step 8: Limit Inquiries on Your Credit Report

Multiple credit report inquiries over a period of time may negatively impact your credit score. Every time you apply for credit, seek some kind on contractual service, or in some cases employment, a credit inquiry will be made on your report. Models show that multiple inquiries over a period of time indicate an applicant who is anticipating credit problems. So limit credit inquiries when only necessary.

What about having multiple lenders compete for your loan?

Many Internet services and brokers allow you to submit one form and have up to four lenders review your credit information. Credit agencies understand that these services may require an inquiry by “multiple lenders” at the same time.

These kinds of inquiries, coming from multiple lenders within 20-30 days of each other, indicate that you are shopping for the best deal. Credit agencies will count these inquiries as being only one inquiry. This allows you to shop and negotiate the best deal without being penalized on your credit report.

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