“Do’s” and “Don’ts” for Keeping Your Credit Clean When You Apply Online for a Credit Card

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It’s very easy to apply online for a credit card if you have good credit. Once you’ve wrecked your credit, however, it can take years to repair it. It’s a lot easier to maintain a good credit rating than it is to fix a bad one, but it takes know-how and discipline. Most people have never learned the importance of a good credit rating and how to maintain one.

If you’ve learned to manage your money well, you’ve probably been told to stay out of debt and not to buy things you can’t pay cash for (other than a home) and to have no credit cards. Unfortunately, that’s not always possible. Anyone can face emergency expenses that can’t be met with your current income. Accidents, emergencies, acts of God, and unexpected events happen to all of us. If something happens and you’ve never established credit, you could find yourself in a very tight spot.

On the other hand, it’s very easy and very common to get into trouble with credit. A lot of people find themselves so overextended that they have constant anxiety about money and how they will pay their bills. They rely on credit cards for normal expenses, like food and clothes. When the unexpected happens, these people may find themselves in a desperate spot, and can even wind up in bankruptcy.

In order to avoid both of those extremes, you want to establish and maintain a good credit record. Here are some tips for doing just that:

DO get one or two credit cards. Credit cards are the easiest way to establish your credit record. If you don’t have a credit record, you may need to get a secured credit card to start out with. A secured credit card is backed by money that you have in a specific account, usually a savings account. Your credit limit is equal to the amount of money in that account. Once you establish a history of reliability with a secured credit card, you can get an unsecured one.

DO pay on time every time. The most common way people screw up their credit is by paying late. The most important thing you can do to maintain a great credit record is to develop a history of paying on time. It shows that you are reliable and responsible with your money.

If you have a hard time remembering to pay your bills, you can usually set up automatic bill paying with your bank or with the credit card company. You need to make sure you have enough money to pay the bills when they come due, of course, and a good way to do that is to keep a minimum balance in your bill-paying account. Sometimes, you can even earn interest on the account by maintaining a minimum balance.

If something prevents you from making a payment on time, notify the creditor immediately, preferably before the payment is due, and let them know when you will make payment. Be sure to follow through.

DON’T ignore late- or non-payment notices. If, for some reason, you do get a late payment notice, take care of it immediately. If you’ve already sent payment, call the company and see if they have received it, and let them know when you sent it. Continue to call back until the payment is received. If you haven’t sent payment, call and let them know when they can expect it. Most companies are very easy to work with and gracious as long as you communicate with them.

DO pay off your balance. Your payment history will look great if you pay your credit card balances off every month. You can really make this work in your favor if you use rewards credit cards, where you accumulate points or airline miles or get cash back based on how much you charge on the card. Some people use a rewards credit card for all of their purchases, and then pay the balance off every month. You collect the maximum reward without overextending your credit that way.

DO limit the number of credit cards you have. Lenders and creditors are wary of people who have too many credit accounts. You may need more than one credit card for flexibility and to maximize rewards, but there is no benefit to having a wallet full of them. Two to four seems to be the ideal number of credit cards for most people. Any more than that may lower your credit rating. Don’t accept credit offers just because they’re available.

DO limit your debt. It’s important not to carry more debt than you can afford. If your debt-to-income ratio is too high, creditors are afraid you won’t be able to pay your bills if something happens, and they’re probably right. So too much debt lowers your credit rating.

DON’T max out your cards. Maxing out your cards (carrying a balance equal to your credit limit) affects your credit rating. It sends a signal that you are overextended financially and are being irresponsible with credit. If possible, it’s best to pay your balance off every month, but carrying a balance that’s less than a third of your credit limit won’t affect your credit rating. If your balance is more than two-thirds of your limit, it will definitely be reflected in your credit rating.

DON’T apply for credit cards too often. Every time you apply for credit, it generates an inquiry about your credit record. There are lots of other reasons for credit inquiries, too—employment applications, insurance applications, starting phone, utility or cable service, renting or buying a home and others. Too many inquiries lowers your credit rating. After you’ve received a couple of credit cards and have established a good credit history, only apply for credit cards if you actually need them.

DO opt out of receiving prescreened credit card and insurance offers. You know all those offers you get in the mail that say you have been pre-approved for a credit card. Before the credit card or insurance company sent the offer, they prescreened you by checking your credit report. You can stop getting those offers for five years by calling 1-888-5OPTOUT (1-888-567-8688) or going to www.optoutprescreen.com.

DO check your credit report at least once a year. You are entitled to a free copy of your credit report from each of the credit reporting agencies (Equifax, TransUnion and Experian) once a year. You can get additional copies free in specific circumstances (like being turned down for credit), or you can pay a small fee. Credit reports frequently have errors in them, and it’s your responsibility to make sure yours is accurate and truthful.

You don’t get your credit report automatically; you have to ask for it. Be sure to check all three reports; they may not be identical. Here is the contact information for them:

• Experian: www.experian.com; 1-888-397-3742
• Equifax: www.equifax.com; 1-800-685-1111
• TransUnion: www.tuc.com; 1-800-916-8800