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5 Steps Toward Healthy Credit

September 24, 2008

31 comments | Comment on this Article

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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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Comments

(31 Total Comments)

I recently settled a number of accounts through a debt settlement agency. The accounts were settled for less than the full amount owed (in some case around 25% of total) and I'm wondering what to do next. I have applied for a secured credit card that I saw on Credit Karma, but I also want to understand the best moves regarding these closed accounts. They are considered "charged off", I believe, so I wondering how long they stay on my report. Anyone have any idea? Are there any other steps I can take besides opening a secured account and establishing a history of ontime payments?"

JPG1234 at 2:00 pm Feb 17

if one went through a bankruptcy 8 years ago should they try to get it off their permanent record or wait for the 10-year mark when it will come off automatically? Does it still affect the credit score after 8 years? Thanks in advance!"

faisty2 at 7:53 pm Dec 29

I am disputing many items on my credit reports. My scores are between 520 & 560. If chargeoffs are removed like they never existed, how many points will each one affect my score. I have had a good-standing, $1600 limit credit card for a couple years & 2 auto loans in good standing for a couple years as well. All debt has been paid off. Thanks for any advice!"

AARONBUM at 11:04 am Nov 22

Really hard to since it depends on everything on your credit report.

CK Moderator

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."

HOTSTUFF3189 at 6:59 am Sep 22

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."

dara07 at 8:04 pm Jul 31

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.

CK Moderator

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"."

CCRONAUER at 1:04 pm Jul 2

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

riggsy1408 at 10:20 pm Jun 30

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.

CK Moderator

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!"

valanddenny at 4:44 am Jun 18

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?"

njfelton at 1:24 pm May 8