Your credit score follows you in many areas of your life. For example, a bad credit score can make it hard to get new loans or credit cards, start a new job, or buy a car or home. So even if you don’t need your credit right now, it’s important to know how to avoid bad credit should you need it in the future.
1. Make your Payments on Time
Your payment history makes up the largest part of your credit score. So one late payment can drag your score down a lot.
A late payment is any payment made over 30 days late. If you miss a payment by a few days, do what you can to make it as quickly as possible to avoid the 30-day late on your credit score. Late payments stay on your credit report for several years but affect your credit score the most in the first year.
2. Don’t Use too Much of your Credit Line
If you have credit cards, don’t max them out. Instead, charge no more than 30% of the limit. If you do, pay it off, or at least down before the next billing date. Any credit line over 30% outstanding will hurt your credit score because it is riskier for new lenders to give you a loan.
3. Don’t Apply for too Much Credit
Don’t apply for every loan or credit card you see. Instead, keep your applications to a minimum. Only apply for credit when you need the funds, such as when you’re ready to buy a house or car.
Applying for every credit card or personal loan that comes your way will bring your credit score down, not only because of the inquiries but also because of the amount of credit you have outstanding.
4. Get Help if you Can’t Cover your Bills
Don’t ignore your bills if you can’t pay them. Instead, contact the creditor and tell them what’s happening. For example, tell your creditors if you lost your job or couldn’t work for another reason. They often have plans they can work out with you. Just ignoring your bills will only hurt your credit score and chances of getting future credit.
5. Check your Credit Report
Periodically, check your credit. Look for any issues you caused that you can fix and/or any issues due to credit fraud. If you don’t know what’s on your credit report, you might be turned down for credit, jobs, or other financial products that you would otherwise qualify for but don’t because of the errors on your report.
Final Thoughts
Avoiding bad credit isn’t as hard as it seems. You can keep a good credit score with regular good practice, checking your credit, and keeping your debts in line.
The key is to have great credit so that when you need to apply for a loan, you’ll get the best rates and terms available.
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