4 Steps to getting your credit score in check
By Guest Blogger Kelly Spors
As a shopper, you probably get hit with a cartload of credit card offers. Retailers often dangle attractive deals to customers who sign up, such as regular discounts, promotional offers or rewards programs. But signing up for these store cards — or any consumer credit card, for that matter — affects your credit score. Your credit score is a number assigned by a financial company, such as Fair Isaac’s well-known "FICO score", that lets potential lenders know your creditworthiness.
It’s important to keep track of this score and try to keep it as high as possible — typically above 700 with your FICO score. (Read more about the FICO score.) Since your credit score can affect the mortgage, auto and personal loan rates you qualify for, and whether you qualify at all, it’s a good idea to check your credit score at least once a year. Your credit history affects your credit score and you can get a free copy of your credit reports from the three credit reporting agencies — Experian, Equifax and TransUnion — once a year at AnnualCreditReport.com. Along with your reports, you can order your credit score for a few extra dollars.
So, as a shopper who may use many credit cards, how can you keep your credit score in check? Here are four key steps:
- Always pay on time. Make sure to pay your credit card bills by the due date every month, as one late payment can knock down your credit score. It’s fine to make the minimum monthly card payment, if that’s all you can afford. But keep in mind that your credit balance compared to your total available credit factors into your score. So if you’re only paying the minimum amount every month, your balance is probably rising over time and — if it reaches over 30% of your total credit limit — could hurt your credit score. (And, of course, retailer credit cards tend to carry high interest rates, meaning you’re paying a lot for holding a balance on those cards.)
- Think twice before closing old card accounts. You might occasionally sign up for retailer credit cards just for a promotional offer but have little use for the card after that. But don’t be too quick to close the account. The reason: Your credit score is partially influenced by how much credit you have available, and the more, typically the better. It can actually boost your score to have more than one credit card. That said, once you get more than a few cards, you may want to close accounts so you’re not juggling so many cards. That can also help lower your risk for identity theft.
- Close newer accounts first. If you do want to close some accounts, consider closing recently open accounts first. Your credit score looks favorably on having long-time open accounts, because it shows you’re responsible and can manage an account for a long period. So if you have to choose between closing an account you got a month ago or one you’ve had for five years, close the month-old account.
- Watch your card-opening habits. You might be enticed by many retailers’ credit card offers, especially as the holidays approach and more retailers are sure to roll out the promotions. But opening too many cards in too short of a period can ding your credit score. That’s because credit agencies assume someone opening many cards in a matter of weeks is desperate for credit — a sign that he or she is financially strained. So while it may be tempting, have some restraint and try not to sign up for more than one new credit card every couple months.
Kelly Spors writes for the leading Roth IRA and online retirement planning resource, RothIRA.com. She is a former Wall Street Journal reporter who has also written for The New York Times, Entrepreneur magazine, SmallBizTrends.com and Yahoo!. Kelly specializes in personal finance and small business issues.