Protecting and improving credit
"If I don’t pay off my credit card balance, could my credit be affected? I thought that as long as I was making my minimum payment, I should be okay."
Protecting your credit rating is the best way you can advertise yourself as a good customer to banks, home mortgage companies, and other financial institutions. And being a good customer often means better interest rates on loans—saving you a lot of money. Any effort to improve your score will put you on a better footing with potential lenders. Here are three additional reasons:
- Maintaining a high score reinforces good payment habits. This includes paying utility bills on time, using only the credit you need, keeping your credit card balances low, paying off credit card balances monthly, and not bouncing checks.
- Superior credit scores motivate creditors and service providers to treat you better. Lenders offer strong borrowers lower interest rates. High credit scores can also improve your chances for buying various kinds of insurance at lower costs.
- It’s easier to maintain a high score than it is to rebuild a damaged score. Rebuilding a bad score takes time, and requires you to argue your case with credit reporting agencies and individual creditors.
Credit maintenance myths
You'll hear plenty of misinformation about credit. The three most common misconceptions to watch out for include:
- Closing unused accounts strengthens your FICO score. Not always. Credit bureaus compare the level of credit you use with the amount you have been approved for. When you close zero-balance accounts, this ratio is thrown off. A high ratio of borrowed money to approved credit can make you appear overextended. Learn more about what a FICO score is, and how it can affect your credit at www.fico.org.
- Multiple inquiries into credit performance weakens your score. Not necessarily. Credit bureaus typically treat numerous inquiries by potential lenders as a single inquiry. Car loan inquiries are an example.
- Checking my own credit score is a bad move. Not true. Credit bureaus will not interpret your own inquiries, or those of landlords and employers, as part of a risky credit-accumulation effort.