Establishing and Maintaining Good Credit

I have never had a late payment; my credit must be excellent, right?

While the existence of late payments with creditors is a strong indicator of poor credit performance, the absence of late payments doesn’t necessarily mean that you have perfect credit. Making timely payments is very important to establishing good credit but is not the only factor that is measured. Perfect or excellent credit history is built over time. Consistent, intelligent use of credit over several years is the best indicator of credit performance.

What other factors are involved in establishing credit?

Creditors look at the average age of your credit accounts. The longer you have had credit accounts, the better your credit rating will be. Older accounts earn a more favorable rating than newer accounts do. Excessive requests for credit can hurt your credit rating. So keep this in mind when you send in your application for that new credit card offer. Creditors monitor the relationship between your credit account balances and the limits. So if you are close to those limits, or over the limit, this could negatively affect your rating. If you have a high amount of revolving or credit card debt, even if you make your minimum payments on time, you could be denied credit.

The last time I applied for a loan, I qualified for the best rate based upon my excellent credit rating. My credit should still be the same next time, shouldn’t it?

Not necessarily. Keep in mind that your credit rating could change from day to day. It is based upon your credit activity. Payments, new credit accounts, credit use and balances are monitored periodically. If you control the use of your credit accounts, your rating should remain stable. However, adding balances, taking on new credit cards and keeping high balances on your existing cards could have an effect on your credit rating.

Why is my interest rate on my loan based on my credit rating?

Many lenders are establishing interest rates on loans based upon credit rating. Members who control their spending and use credit wisely, are rewarded with lower rates. Members who have minor credit glitches or high credit card balances, may still be approved for a loan. The higher rate they pay is relative to the higher level of risk they pose as determined by their credit history. One rate does not fit all in today’s economy.

I get pre-approved credit card offers all the time. I sign up for them because I am trying to build up my credit. Isn’t this a good way to establish credit?

While it is a good move to establish credit history, taking on credit that you don’t need is not a good idea. If you take on too much debt and can’t repay it, you will damage your credit and won’t be able to get a loan for something you do need, like a car or a home. Every time you send in a pre-approved offer, a cedit report is pulled. Too many credit inquiries can negatively impact your credit rating. One or two small credit cards are all anyone needs. If you want to build your credit, establish a savings account and deposit a set amount to it each week or month. Think of it as making a loan payment. If you can easily do this for a period of time, you will know that you can afford a payment and you will build your savings. Use that savings as collateral for your first loan and get a lower rate than on those credit card offers!

What else can I do to make sure my credit is in good shape?

Order a copy of your credit report on an annual basis. Review it for errors and activity. Make sure all the activity matches what you have done over the past year. If errors are found, dispute them with the credit-reporting agency.

Remember that good credit comes from using credit wisely over a long period of time.

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