How do I improve and maintain my credit?

Your credit score is an extremely important part of your financial life. All your creditors review your score to determine whether you’re eligible for credit and, if so, at what interest rate. The higher your credit score, the lower the interest rates you pay on credit cards, car loans and mortgages. Other entities can review your credit as well up to and including insurance companies, landlords, and employers. You want to make sure your score is as high as possible and stays as high as possible to ensure the best rates possible. The lower your rates the less interest you pay for everything in your life.

Here are some basic tips:

Pay on Time. Every time!
Your track record paying all your bills, not just your credit card, is the single biggest factor in your credit score. It accounts for 35 percent of your score.  Even if you only send in the minimum amount due on your credit card bill, send it in on time. No Excuses If you find that you are late every month on one or more bills then you are living beyond your means. You need to cut back on something or work something out with your creditor to move your due date. Communicate with your creditors and let them know what is going on.

Don’t Max out your credit cards
The amount you owe on your credit cards as a percentage of your outstanding credit limit—known as your debt to credit limit ratio—accounts for 30 percent of your score. The best way to keep this percentage low is to make sure you don’t run up a big balance. Another option is to call your card company and ask for your credit limit to be raised. For example, if you have a $5,000 balance and a $10,000 limit, you are at the 50 percent level. But if your credit limit is raised to $15,000, your ratio is reduced to 33 percent. Just be sure not to use the extra credit limit for “emergencies.” I can’t tell you how many times we said buying and outfit for a wedding was an emergency. Keep things in perspective.

Build a Strong History.
How long you have had an account determines 15 percent of your score. The longer the history, the more confident a lender can be about your financial behavior. For this reason, don’t cancel any unused cards, because their history will be wiped from your record. So, let’s say you no longer use a card you took out 10 years ago, because you got a better deal elsewhere. That’s fine; just stick the card somewhere safe and sound, but don’t cancel it outright. Even though you aren’t using the card, you still want to use the history. The longest account I have is a gas card from 1991. If I would have cancelled it my next oldest account is from 1994. Makes a difference.

Don’t Be a Credit–holic.
Potential lenders hate to see you applying for a lot of credit; it makes them think you’re going to get in way over your head with debt. Your pattern of opening new accounts, or applying for new accounts, determines 10 percent of your grade. One important caveat: If you confine your mortgage shopping to a two-week period, all those applications (and lender requests for your credit score) will be bundled together and count as only one request on your record. Same goes for auto buying. If you apply for auto credit in the same 14 day (2 week) window it all counts as one request on your record. Try to limit your requests for credit to once a year. Don’t apply for those in store credit cards just for the sale. 10% a balance that charges 22% is not that great of a deal.

Watch Your Mix.
You don’t want to have a ton of open credit lines or loans. Your mix of credit cards, retail cards and installment loans accounts for the final 10 percent of your score.

I recommend going to myfico.com and purchasing all three credit bureaus for review. You can’t improve if you don’t know where you are now. Find out now and keep moving forward instead of backward.