8 Things People With Good Credit Never Do
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Paying your credit card on time every month can raise your credit score, and with an excellent FICO score it's easier to qualify for loans and a low interest rate. However, achieving a high credit score is just the beginning. You also need to maintain this score. (See also: How to Rebuild Your Credit Score in 8 Simple Steps)
If you don't know a lot about credit, you might unknowingly do things that lower your score over time. Maintaining good credit isn't rocket science, but you'll need to know the right ways to manage credit.
For a solid place to start, here are eight things that people with good credit never do.
1. They Don't Rely on One Type of Credit
You might feel that it's safer to stick with one type of credit. This way, you can keep your finances simple and avoid unnecessary debt. However, credit scoring models take into account the types of accounts you have, and diversifying accounts work in your favor.
A mixture of different types of accounts shows that you're able to manage multiple debt, which adds positive points to your credit score. A good mix includes a credit card and an installment loan, such as a mortgage, an auto loan, or a student loan.
2. They Don't Wait Until the Due Date to Pay Off Credit Cards
People with good credit know the danger of excessive credit card debt, and they might pay off balances each month to avoid debt. However, these individuals don't always wait until the due date to pay off their cards — they pay by the report date. (See also: Pay Bills Early? Only If You Want to Save Money)
The report date is when a creditor sends updates to the credit bureaus, and paying off credit cards by this date is a smart move for those who use their credit cards heavily during the month, perhaps to rack up rewards points. Let me explain.
Let's say you charge $2,000 to your credit card every month, and you don't pay off this balance until your due date on the 15th. If your creditor reports to the credit bureaus on the 10th of every month, it'll appear as if you're carrying a $2,000 balance from month-to-month, despite the fact that you always pay off the card by the due date. But if you pay off the credit card by the 10th of the month, the creditor reports a zero balance. The less debt on your credit report, the better.
3. They Don't Stop Using Their Credit Cards
Cutting up a credit card might be the answer when you cannot control spending. However, people with good credit never stop using their cards — even if they only charge $10 or $15 every few months.
Some credit card companies cancel accounts due to inactivity, which can affect an account holder's credit score is two ways. A cancelled account might cause their overall credit utilization ratio to go above 30%, which can trigger a drop in credit score. Also, if a cancelled account happens to be the account holder's oldest account, closing this account can eventually reduce the length of the account holder's credit history, resulting in a lower credit score.
4. They Don't Turn Down Credit Limit Increases
You might be shocked to learn that a creditor increased your credit card limit by several thousand dollars. To avoid any temptation, you may even call the creditor to decline the increase. However, credit limit increases aren't necessarily a bad thing. They can widen the gap between your credit card balance and your credit limit. This lowers your credit card utilization ratio and helps maintain a good credit score.
5. They Don't Open Retail Accounts
Getting a retail charge card isn't credit suicide — as long as you apply sparingly. However, people with good credit know how credit inquiries impact credit scores, and they don't arbitrarily apply for store accounts to save 10% off a purchase.
Each inquiry can reduce a credit score by up to five points, depending on the credit history. This might seem like a minor ding, but if you applied for ten accounts in a short period, that's up to 50 points off your score.
6. They Don't Ignore the Fine Print
There is no one-size-fits-all credit card. People with good credit know that terms and fees can vary by credit card company and they read the fine print before applying. This part of the application highlights everything from the introductory rate to balance transfer fees. Knowing the card's terms is how they take charge of their credit. This way, they don't get stuck paying unnecessary fees or a higher interest rate, and they can decide whether a card works for them.
7. They Don't Forget to Monitor for Fraud
Financial experts recommend that everyone order a free copy of their credit reports at least once a year. However, people with good credit don't rely solely on yearly checkups. They're always on top of their credit and they typically sign up for credit monitoring services. These services send an email alert whenever an account is opened in their name, allowing them to catch fraud before it destroys their credit score. (Discover it card offers your recent FICO credit scores for free in a chart on monthly statements and online.)
8. They Don't Co-Sign Loans
People with good credit do not put their credit score at risk. They know that co-signing a credit card or loan can potentially ruin their credit history. Even if the primary account holder doesn't completely default, he might send payments 30 days late, which triggers a negative remark on his credit report and the cosigner's report.
Do you have good credit? What are some things you did to get there? Let me know in the comments below.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any bank, card issuer, airline or hotel chain.