Six Secrets to Keeping a Good Credit Score

Many people out there don't realize that the things they do on a day-to-day basis can affect their credit. That silly book club that you thought you fulfilled all the obligations for. The credit card you thought you paid off but forgotten about the interest. That loan you co-signed for a friend you trusted to repay. These are only a few of the 'hidden' issues that could negatively impact your credit score.

What is a Credit Score?

A credit score is defined as, "...a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person." An individual's credit score is created based on information received from credit reports from various credit bureaus, such as TransUnion or Equifax. It is this score that credit grantors look at to determine whether or not to give you extra credit. The higher the score, the better your credit and, from the grantor's perspective, the less risk you are.

So, you can see how vital it is for one to pay attention to one's credit score. Having a poor credit score can affect your ability to obtain extra credit, the status of your current credit, even the ability to obtain a driver's license or passport!

TransUnion offers many tips and suggestions on how to maintain good credit and keep your credit score strong. The following are their six secrets to keeping a good credit score:

• Harmonize your payments. A history of late payments - even by a few days - can potentially harm your credit score. Consider automating your payments so you can't miss a due date or set an automatic monthly reminder on your calendar to help you pay at least the minimum balance on your bills in a timely fashion.

• Simplify your accounts. Credit balances current and past provide insight into issues of financial responsibility and prudent borrowing. Concentrate on paying down debt. While all your debt payments are important, whenever possible, you should prioritize and pay off high-interest accounts like credit cards first to avoid accumulating high interest charges over time.

• Bring the right balance to your finances. Maintaining low balances on credit cards and open lines of credit can help you better position yourself in the eyes of lenders. As a rule of thumb, keep these balances at or below 30% of your total available credit to present the best possible financial image to lenders.

• Control your spending. Maxing out your credit cards and/or other lines of credit will make it difficult for you to obtain any additional credit or credit at the best possible terms and may cause lenders to view you as high-risk. Set budget goals consider using only cash or a debit card if you can't seem to master your credit card habit.

• Maintain peace with existing credit relationships. Long-term credit relationships and a diverse mix of credit accounts can strengthen your financial reputation. Avoid closing credit cards and other accounts that have been consistently paid on time over a period of many years, as this can ultimately make your credit history appear shorter and could affect your score.

• Master your knowledge of credit inquiries. When you open many credit accounts in a short amount of time, you may appear to have cash flow problems - an implication that could lower your score. However, multiple inquiries for a mortgage or auto loan over a few week period are typically counted as only one inquiry each, enabling you to shop for favorable rates without being afraid of lowering your score.

Adhering to these top tips-in addition to staying on top of your bills, making regular payments on time, and only have the amount of credit you actually need-will definitely keep you in good financial shape.

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Resources:

Trans Union: www.transunion.ca