When it comes to managing your credit, there are many ways to ensure you are maximizing your score potential while also employing best practices. Credit management is an ongoing process – not something that is only done every now and then.
There are many different ways to manage your credit in a smart and proactive way. From payments to fraud alerts to budgeting, credit management can be attainable for anyone.
Check out the following credit management tips and get started today.
1. Monitor your credit
While pulling a hard credit report often can hinder your credit score, there are many free apps to monitor your credit score safely. These companies are not able to give you an exact credit score, but they are excellent platforms to ensure your credit is healthy and no other fraudulent behavior has occurred on your reports.
Another easy way to monitor your credit is through a credit card company. Because banks and credit unions report to the credit bureaus, they can often assist you in monitoring your credit by providing score updates and by reporting suspected fraudulent behavior.
2. Pay more than the minimum amount due
Another important step for credit management is to pay more than the minimum amount due on your credit cards and other debts. When you only pay the lowest payment possible, you are typically only going to cover the interest earned on the balance, which will extend the life of your loan.
By paying more than the minimum payment, you will actually start to pay down the principal on your debt, lowering the balance, and decreasing your credit utilization rate – all of which are excellent steps for smart credit management.
3. Set and stick to a budget
Sticking to a budget is a vital step to smart credit management because it will assist you in maximizing your income to improve your credit. Budgeting does not have to be complicated – creating a simple budget is one of the steps to improve your financial situation. Closely sticking to the budget you create can positively impact your finance and credit significantly.
4. Keep Your Credit Card Balances Low
One important factor that credit bureaus use to calculate your credit score is your credit utilization rate. This rate is calculated by taking your current credit card balances and dividing that amount by the total amount of credit available to you. This is your credit utilization rate.
For example, let’s say you have three credit cards that each have a balance of $500 and a maximum credit of $1,000 for each. To calculate your credit utilization rate, take your total amount owed ($1,500) and divide that by your total credit limit for all cards ($3,000). This equates your credit utilization rate to be 50%.
Most financial experts would agree that keeping your credit card usage below 30% is ideal for your credit health. Therefore, monitoring the balance of your credit cards and keeping those balances low are great steps to smart credit management.
5. Keep an eye on the age of your credit card
Another thing that credit bureaus use to calculate your credit score is the average age of your open accounts. Therefore, opening multiple credit card accounts each year can be hindering your overall credit score. It is important not to open any new credit cards without first looking at how it may impact your credit age.
On the flip side of that, you may not want to close accounts without looking at this factor as well. If you close a credit card that you have had opened the longest, your average credit card age will decrease dramatically. Some credit card companies may close accounts that haven’t been used over long periods of time, so it’s important to regularly check up on each of your open credit card accounts, even if you don’t use some of them frequently. This step to credit management is tricky, but knowing how it may impact your credit is a key factor in credit success.
6. Limit number of hard inquiries on your credit
A “hard pull” or hard inquiry on your credit is what credit card companies do when you request a new credit card or loan. The creditor is requesting to look at your official credit report to determine the risk associated with loaning you money.
While not all hard inquiries are bad, and they are essential to gaining certain loans (like mortgages, auto loans, and credit cards), too many inquiries can negatively impact your credit score. Most experts recommend limiting hard inquiries to less than six times a year to achieve smart credit management.
It is also worth noting that a soft credit inquiry will not impact your credit score the same way a hard inquiry will. Most of the time, soft credit inquiries are done when a credit application has not occurred, these are often associated with pre-approvals for credit cards or loans. It is worth asking whoever is requesting a credit check if the inquiry will be hard or soft, and request a soft pull if at all possible.