Two Healthy Credit Habits to Begin
Whether your credit score is low because you have not maintained good credit or simply because you have never established credit, maintaining a good credit score is an important aspect of financial health. Below are two healthy credit habits you can employ now to establish a good credit ranking.
Use Less than 30% of Available Credit
The amount of credit you utilize accounts for 30% of your total credit report. This number, however, only applies to credit cards, which have a total limit for credit. Credit bureaus note consumers who use more than 30% of their available credit. Using too much makes the bureau think you rely too heavily on cards to fund your lifestyle. Even if you pay that balance off every month, the utilization is still reported to credit bureaus. To avoid using more than 30% of your available credit, keep a close eye on your account to check the balance and divide that balance by your available credit. This calculation will generate the percentage of available credit you are using. If you do go over 30% every month, pay half of your credit card bill before the billing cycle closes! This will help cut down your utilization ratio by the time it is reported.
Carefully Open New Accounts
You can easily tank your credit score if you open too many new credit accounts. Credit bureaus ding customers that open too many credit card or loan accounts in a short period of time as it may be viewed as a sign of financial instability. This component makes up about 10% of your credit score. Opening too many new accounts also brings down the average age of your credit history, a component that accounts for 15% of your credit score. Lenders look for borrowers with the highest credit history age possible so avoid opening too many accounts. When you do open a new account, consider whether it is worth negatively impacting your credit score.
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