When it comes to maintaining good credit, it mostly comes down to exercising good judgment and common sense. If you make your monthly credit card payments on time, keep a low balance relative to your credit limit and avoid taking risks, your credit score will reflect a strong and high rating. Unfortunately, all too many times there are individuals who make the wrong decisions and in the process, end up ruining their credit. In order to avoid these mistakes, we’ve put together a list of actions you can take (or avoid) in order to maintain your credit and prevent it from becoming a burden.
Do Not Miss Payments
While missing a payment with most bills results in a small late payment penalty, missing even just one credit card payment can spell disaster for your credit. Not only do some credit cards increase your APR (in some cases, doubling it) when you miss your payment, but your credit score is also impacted by the delinquency. Keeping your credit card payments small and manageable is key to making sure you always have the ability to make your payments on time, which ties into the next piece of advice.
Keep Your Balances Low
Credit scores are not determined solely by payment history but also by looking at the amount of credit you use relative to the amount of credit you have been given. Most responsible individuals do not max out their credit cards, as this behavior is indicative of not being able to keep up with your finances. As a result, your credit score can be impacted and therefore affect you adversely when applying for a mortgage, car loan or other significant line of credit.
Slowly Close Out Inactive Credit
Having excess credit can be considered a good or bad thing, depending on the situation. What many people do not realize, however, is that cutting off multiple lines of credit currently in good standing can have a negative impact on your credit. These accounts help maintain your credit score and by eliminating them, you end up with less positive credit references. Over the long-term, it is a good idea to eliminate unused lines of credit but it is best to do so over an extended period of time: eliminate one major line of credit every six months until you get to the desired number of remaining credit lines.
Avoid Third-Party Liability
Finally, protect your credit by keeping it to yourself. Co-signing on dangerous or risky loans for people who do not have established credit can have a short-term impact on your credit from being associated with the individual and a long-term impact if the individual defaults on the line of credit or loan. Always keep your finances separate from friends and family in order to avoid strife and worry down the road.