Keeping your credit score healthy

Maintain a healthy score over time, and you’ll have a better chance at getting a low interest rates on any new loans you apply for. Here are a few more tips for keeping your credit score at the higher end of the range.

If you close accounts, close your newest accounts first. A longer credit history will have a positive effect on 15 percent your credit score. If you shut down the oldest account you have on file, you shorten the overall length of time your active accounts have been open, so start with the newest accounts.

Credit balances

Make sure your credit balances are low before you close credit cards. The percentage of credit that you’re using, when compared with your total credit limit, is an important factor in calculating your credit score. When you shut down a card, you’ll lose its credit limit and your percentage of credit use will rise.

If your balances are low, it may not make much difference. But if your balances on other cards are high, and you shut down a card with a high limit, your overall credit use percentage will rise abruptly. When this happens, your credit score falls. Your credit use on the whole counts for 30 percent of your score. Pay your balances first, then shut down your card.

Shop for loans within a narrow period of time. Data on “new accounts” counts for 10 percent of your score. Credit inquiries — orders for your credit report, initiated by financial institutions when you inquire about a loan — belong in this category.

Having too many recent credit inquiries can count against you. It can signify that you’re looking for a lot of new credit, and that you may be a future credit risk. But the scoring formula makes one exception: if you’re shopping for different rates for one loan.

If you want to ask different institutions about a car loan, your credit score can count those many inquiries as a single inquiry. As long as those inquiries fall within a narrow range — 14 or 45 days, depending on the formula used — you’ll be safe in terms of your credit score.

Your requests for your credit report don’t count against your score. Neither do “Account Review” requests from your existing creditors, because these requests don’t involve your direct pursuit of new credit. Companies that “prescreen” consumers may also look at your report, in order to send out promotional offers like pre-approved credit cards. Likewise, these inquiries do not affect your score.

Monitor your credit

Consistently monitor your credit report. Keep an eye on your credit report every year, to look out for fraudulent activity or mistakes that can lower your score. Viewing your free credit reports every year can also keep you motivated to improve your score.

When you order your reports for the first time, it’s a good idea to order all three at once, to check the previous years of your credit history for errors and fraud immediately.

But after the initial check, you can try staggering your reports throughout the year, by ordering one free report from one credit bureau every four months. Instead of waiting 12 months for new reports, you can monitor your information throughout the year for free, and you’ll be alerted to potential fraud activities more quickly.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.


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