Credit scores are a tricky part of your finances. You never have to outright calculate them for much, but with every purchase, you are affecting the outcome of your credit score. So, what goes into creating a credit score? The formula is based on utilization which is a fancy word that means the ratio of balances owed compared to the credit limits on revolving accounts. It can be difficult to keep a tiptop credit score, but here are some tips from Ryan Homes at Brunswick Crossing to build strong credit:
-
Never close credit card accounts to improve your credit score. This can negatively affect your score because if the revolving credit card account is closed, it means a zero is plugged into the formula, which can actually lower your score. Feel free to close certain accounts for other viable reasons, such as fear of identity theft, expensive annual fees or budgeting, but do not close the account for the sole purpose of improving your overall score.
-
Do not open a lot of accounts to raise your credit score. Much like our first tip, this is counterintuitive. However, if you do not have a credit card, it is wise to get one and build responsible, long-lasting spending habits.
-
Do not ask to lower your credit limit. This pushes your utilization higher, which can also lower your score in the long run. Make sure your limit is manageable with your spending habits before you begin swiping the card.
-
Use your credit cards for only big purchases, and when paying down your bill, pay it off in smaller payments instead of paying in full. (Paying in full near the bill date does not hide a high credit card balance.) Think about when the bank applies interest to your credit card bills – you want to be paying off a mortgage for months, not small fast food receipts.
-
Do not micromanage your credit card score. You should budget between your credit card limit and payments with other financial responsibilities, but do not refresh your score every few weeks. The chances are that you will not see much of a difference, but you should check it periodically for accuracy.
-
Pay your credit card bills and balances on time, every time. Late payments will put a damper on your efforts to build strong credit, so write that check on time!
Your credit score is a snapshot of your spending habits, specifically with your credit card. To build strong credit, you should cultivate responsible spending habits, such as using credit cards for big purchases only and paying off bills on time, from the get-go. While developing your credit card history, do not open or close accounts just to improve your overall score, and try not to check your score every chance you get. Give it some time to improve. As Yahoo Finance says, “Building good credit is a marathon, not a sprint.”
If you are interested in building your credit score and a home life, consider moving into Brunswick Crossing. We would love to have you and your family!
