Monday, February 6, 2017

5 Rules to Follow if You Want Good Credit

There are the financial gurus or advisers on TV, radio, and in print that advise their followers to cut up all their credit cards and go on a cash only basis. 

These advisers often already have a great cash flow either from their book sales, their speaking engagements, their media gigs, their investments, or any combination of the above. Ironically, often they used credit to get to the point where they are and now they are advising all of us to stop using credit.

However, for most of us, carrying a few credit cards is the norm. Nevertheless, if you want to keep your already good credit or want to improve your credit even more, there are some things you should not do: 

1. Don't miss a payment and end up paying 30 days late. This results in an immediate negative impact on your credit score.

2. Don't resume paying a delinquent account if it is over two years old unless you are applying for a mortgage loan and the lender requires it to be paid off. Delinquent account over two years old have minimum impact on your credit score and if you start paying it again, the algorithms at the credit bureaus will treat it as if it was a recent entry. Please avoid doing this. Do not feel guilty that you didn't pay this obligation, it has been charged of as a bad debt by the creditor.

3. Don't accumulate more than five revolving credit cards (for example, Master Cards, VISA cards, and Discover cards) and always ignore the instant credit offers from retail stores giving you 10% off. They almost always have a higher interest rate and besides these stores accept Master and VISA cards anyway. They just want to make extra money off of you.

4. Don't allow your credit to exceed 30% of your credit limit. For example, you have a credit limit of $1000 your balance should not be more than $300. The larger the spread between your balance and your credit limit the better. If you can afford to pay off your balance each month prior to the due date on your statement, that would be even better.

5. And finally, don't close your credit cards that have these low balances and transfer these balances to new credit cards offering lower interest rates. That will result in you having fewer credit cards with higher balances thus impacting your credit score negatively. Instead, negotiate with your current creditors for a lower interest rate. You already have a good record with them and chances are they will not want to lose your business. 

Make these don'ts a habit and you will continue to maintain your good credit, and even see it improve.

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