Credit is often times confusing and almost never straightforward, but there are certain rules we all need to follow.
Let’s take a look at the 3 most important rules to follow to build and maintain good credit.
1. Pay Your Bills On-Time
35 percent of your score is calculated from how well you repay your debt. I know this sounds redundant but the fact of the matter remains, pay your bills on time and your credit score increases, make late payments and you substantially lower your credit score.
This is the most important factor of the credit score because the credit score itself is a gauge to see the likelihood of a consumer becoming over 90 days past due in the next 2 years. So, I’ll say it again, pay your bills on time.
2. Keep your Balances Low
Never missed a payment but still have a low credit score? Odds are that your credit is likely maxed out. 30% of your credit score is calculated from the utilization of your credit.
Ideally, you want to keep your credit card balances at 20% of the credit limits or lower ($200 balance / $1,000 credit limit = 20% utilization) and keep your installment loans at a 49% utilization or lower ($49,000 balance / $100,00 mortgage = 49% utilization).
Simply put, the less debt you have in relation to the amount of available credit, the higher the credit score.
3. Do Not Co-Sign for Anyone
A person who asks you to co-sign for them is typically someone who can’t qualify for a loan because of an issue with their credit. Co-signing for someone means that you are taking full responsibility and ownership of the loan. If the other person doesn’t pay the loan on time, they will ruin your credit and cost you hundreds of thousands of dollars.
Do yourself a favor, and learn to say no. And the next time someone asks you to co-sign for them, just say no.