Credit News

5 Steps Toward Healthy Credit

by Staff Writer, Credit Karma

September 24, 2008 | 28 comments

Self improvement is a great thing. Becoming a better public speaker can earn you a promotion. Going to the gym regularly can help you lose a few pounds. Best of all, managing your credit better can save you hundreds or even thousands on life's big purchases. Managing your credit is not hard, it just takes time and little knowledge about the credit scoring system.

While each person's individual credit profile should be managed in its own way, there are five basic things that everyone can do to work toward healthy credit.

Be punctual- Pay all your bills on time each month. Late payments, collections, and bankruptcies have the greatest negative effect on your credit scores.
Check your credit reports regularly and take the necessary steps to remove inaccuracies – Don’t let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report contact the creditor associated with the account or the credit reporting agencies to correct it immediately.
Manage your debts – Keep your credit card account balances below 35% of your available credit limits. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $350.
Give yourself time - Time is one of the most significant factors that can build healthy credit. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit report open in order to lengthen your period of active credit use.
Avoid excessive inquiries - A large number of inquiries occurred over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay. Apply for new credit in moderation.

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USER COMMENTS(28)

HOTSTUFF3189
Sep 22
6:59 am

I have a very poor credit score, and I want to be able to afford my own house and I am in the process of cleaning up my credit. The lender that I talked to told me some good pointers on what would raise my scores. 1. is to pay on time. 2. get one credit card and pay on time and pay off every month. 3. pay on small collection accounts. maybe this will help anyone out there. Also only use the card on purchases that you know that you can pay off in a month when u get your statement.

dara07
Jul 31
8:04 pm

I consigned a Mortgage lone with a good friend of mine of $671240.It is time for my to buy my own House may be in the next ten months. My first Question is that Can i still become a first buyer?,

Second, even though i have learnt that for him to take my name off from this Mortgage he would have to refinance this home but he does not want to do that.

What can i do personal to take my neme off. Mty credit score is between 719-730 at the present.Thanks.

CK Moderator

Unfortunately, if you co-signed with a friend, you will have lost your first time homebuyer status. If you were no longer on the mortgage, you might be able to get through a loophole in the Making Home Affordable plan that allows homebuyers who have not bought a home in 3 years to be qualified.

On your second question, there is not much you can do to get yourself off the mortgage. Your friend most likely needed your credit score, your income, or your assets in order to secure the loan. Today’s lending guidelines are more strict and its now even less likely that your friend will be able to qualify for a mortgage on his own. As for your individual situation, since you are technically still responsible for your friend’s home, and unless you make enough to support your friend’s and your new mortgage amount, your Debt to Income ratio is going to be too high for you to purchase your own home. You need somewhere around a 38% DTI (Debt to Income) ratio to be in the running for a loan. So assuming you make $10K/month, all of your debts need to be in that range, around $3,800/month. That is, if your friend’s mortgage, your new mortgage amount, the taxes and insurance premiums, the minimum payments due on any credit card balances, as well as any other loans, student, car, etc. need to be wrapped up around 3,800 and there is a chance you can qualify for a mortgage. Your best bet is to speak to a trusted mortgage professional who can look at your credit report and determine what options are available.

CCRONAUER
Jul 2
1:04 pm

When are credit rating agencies going to realize that many "new" credit cards are obtained only for initial purchase discounts, then never used again. They need to only "lower" your score based on number of open accounts in "use".

riggsy1408
Jun 30
10:20 pm

Does anyone know if requesting credit limit increases hurts your credit score?

CK Moderator

Some lenders will perform a hard inquiry when you make the request so yes in that case. But not all do. You should ask the lender before you make the request if you are concerned.

valanddenny
Jun 18
4:44 am

Love credit karma! Until this year, I never took my credit score seriously and it showed. My husband and I have changed and credit Karma is really helping us keep on track, thank you!

njfelton
May 8
1:24 pm

I was using the credit simulator and I tried to find out what would happen if I had an on-time credit history for 24 months and my credit score projection did not change. This article says that time should improve a score. Nothing I do in the simulator improves my score except getting a mrtgage which my score is keeping me from doing. What's up with my simulation?

CK Moderator

Very common for people with high credit and a long credit history since 24 more months does not really change your risk profile.

lillyharari
Apr 17
2:22 am

My first day here, and the first article I read. I hope all the rest are this straightforward. Great article!

MikelS01
Feb 8
6:36 pm

i recently tried to get a loan based on the collateral i have and was turned down, (the collateral was more than the loan) the reason the bank gave me was i have NO credit score nothing. so 2 questions, how can you give me a score? and how can someone with no credit good or bad and no cosigner start to build credit?

laurahen85
Feb 3
10:54 pm

i have a question..i have one sony credit card has already been charged off and some company have it now..and i only make eight dollars an hour plus commission...the thing is its been a year i havent paid that card cuz i was busy paying another outstanding bill from chase that is closed and havent been charged off...and ive been paying every week, but the sony card cord the collection told me i have 30 days to pay 75 percent of it and suggest i should get a secondary loan...i dont know where to look and should i have a co signer to get it...any suggestions cuz i cant come up with that amount of money cuz im tring to pay for school transportation, etc...we are in recession here

a42smiley
Feb 2
6:34 pm

i have old accounts and they are being sold to other collection, why do my accout keep starting over and why is the accout on my credit 2 or 3 times please help me to understand my report