You’ve seen the commercials, heard others talk about it, and maybe you’ve even wondered about it: your credit score.
And when it comes to credit scores, you definately want a healthy one. You will need a high credit score when looking to rent an apartment or signing contracts for some goods and services such as cell phone plans. Yes, the stories are true, your credit score matters.
Lenders, third parties and those in between all look to your score to see if you’re a risky borrower. A credit score can also determine whether you’re able to get application approval for an apartment or if you’ll be stuck residing at your parents’ house indefinitely.
No ifs, and or buts, your credit score is an important part of your financial health — and your credit card habits and history are big contributors to its score.
You might be surprised to learn that the average credit score is a 667, according to a recent Experian study. However, if you’re looking to improve your credit score — or simply keep the score you have stable— make sure to avoid these credit card traps, according to an article on Wisebread.com.
Avoid a high credit card balance
Even if you’re paying off your credit card bills in full monthly, you may still be hurting your score by how much you’re spending. Your debt-to-credit utilization ratio — how much debt you’ve accumulated on your credit cards divided by the credit limit on the sum of your accounts — comprises 30% of your credit score, according to Wisebread.com.
If you want a good credit score, you need to keep your credit utilization ratio relatively low. How? Try and keep your balance to no more than 10 percent of your credit limits, credit experts suggest.
Don’t make late payments
Payment history comprises a big portion of your score — 35 percent in fact. This means even missing only one credit card payment can really hurt you. But don’t despair, there are some things you can do to prevent this. First, open an automatic bill pay by linking your credit card to a checking account. Alternatively, set up text message or email alerts to remind you when a payment is due, according to Wisebread.com
Check your credit report
Did you know every 12 months, you’re entitled to a free copy of your credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion? Because errors can appear on your report for reasons beyond your control — like someone sharing the same name as you and the bureaus mixing up your accounts — you need to check each report. Stats say, one in four Americans has spotted errors on their credit reports, according to a 2013 Federal Trade Commission survey. And note, because it can take time to get errors erased, you’ll want to be proactive and contact the credit bureau immediately if you notice something weird. Another error many make is that they think their score is part of the free report. It’s not. Your credit report includes only your credit history — not your numerical credit score, according to Wisebread.com
Don’t open too many credit cards at one time
Be aware that each time you apply for a credit card, you start an inquiry on your credit report, which dings your credit score by up to five points. Although a slight ding may not seem like a big deal, opening multiple cards could significantly damage your score. Also, each time you open a new credit card, you shorten the average age of your credit accounts; this can hurt your length of credit history, which constitutes 15 percent of your score, Wisebread.com reports.
Should you close old credit card accounts
Also, be aware that if you close an account, it reduces the average age of your accounts and lowers your available credit limit — a double ding to your score. Make sure you charge a purchase to each credit card at least once per quarter; if you don’t, the credit card company could see the account as inactive and possibly even close it without giving you notice, Wisbread reports.
Bottom line to keeping a healthy credit score: Try to pay off your credit card balances in full and on time each month to avoid any problems.