Optimize Your Credit Score through Credit Card Management

When we were kids, our parents told us lots of things about common sense. “Better safe than sorry,” they’d say. Or: “Don’t put all your eggs in one basket.” Or: “Look both ways before crossing the street.” And yet, how often do we as adults find ourselves in a jam due to our failure to exercise common sense? One of the ways we frequently mess ourselves up is with regard to credit. Many of us have no idea how it works, and yet our credit history and credit scores are hugely influential in our everyday lives.

Everyone knows it’s important to have good credit history, but actually getting it is often a mystery. There are many books on credit and articles on credit cards, but many of them are confusing or misleading. Where is the good advice? Why, it’s mostly just common sense.

• Stay on time! This is basic, but it’s certainly the most vital point in keeping your credit score high. Late payments are by far the most frequent negative factor included on credit reports. Failing to pay a debt altogether might ultimately be worse, but all those months of late payments leading up to the default is devastating to your credit score.
• Many lenders allow customers to pay their bills automatically online, which is helpful if you sometimes forget when things are due. If a payment does slip your mind, you should contact the lender at once to alert them and take care of the situation before it goes too far.
• Build up a positive payment history. Paying late and not paying at all are the two most frequent strikes on credit reports, but they’re also the things you can control the most. Pay on time, and whenever possible, pay off your balances in full each month. That shows you’re a responsible adult and that you can handle your obligations. One way you can establish this practice is to pay your daily expenses on your card, but keep track of the amounts and take it out of your checking account. Then, at the end of the month, use that money to pay off the credit card.
• Don’t keep a lot of cards. Have no more than three or four good credit cards at the most. That way, you can be somewhat flexible (and use certain cards with certain bonus points where necessary), without having so many cards that it makes you look frivolous and lowers your credit score.
• Keep your credit use low. One of the major things lenders look at is your debt-to-income ratio. That’s how they can tell whether you’ll be able to pay back the money they’ve lent you. Because of that, very large outstanding balances mess up the ratio, which lowers your credit score and might frighten off potential lenders. To prevent this, pay off your balances as much as you can.
• Likewise, don’t max out your credit cards. Creditors look at how much credit you have available to you and compare that to how much you’re actually using. If you’re always maxed out, you appear stretched thin and unable to repay your obligations. Your credit score goes down, and new lenders are hesitant to extend credit to you. Try to keep your balance to under 30 percent of your credit limit. At the very most, don’t go over 60 percent.
• Don’t apply for credit unless you really need it. Every time someone other than you asks for a copy of your credit report from the credit bureaus, it’s noted. If there are a lot of inquiries within a short space of time, it will look like you’re frantically trying to get more credit, which signals to the lenders that you’re overburdened. So just because you get a good credit card offer in the mail, that doesn’t mean you have to apply for it. Let it go, unless you actually need a new credit card.
• Keep close watch on your credit report. Request a copy of it every year from the credit bureaus. Some estimates suggest that 80 percent of all credit reports have errors in them. And it’s up to you, the consumer, to ensure your own report is correct. Out-of-date or misleading information can lower your credit score.

It’s also important to look at your credit report so you can see if you’ve been the victim of credit card fraud. Report any suspicious charges immediately, and if there are errors in your report, have them changed right away.