You might not think about your credit that often, but when it comes time to apply for a loan it’s a top priority. The thing is, if you wait until that moment to concern yourself with your credit health, it may be too late to do anything about it.
So instead of waiting until you need it, anticipate that someday you’ll probably apply for a mortgage or auto loan—or even a credit card—and take a few steps to start improving your credit health today.
Get in the habit of checking your credit report on an annual basis to make sure that it is accurate.
Check your three, free credit reports from AnnualCreditReport.com. You’re entitled to these once per year. After you’ve pulled your reports, go through them thoroughly to check for errors. You should look out for things like accounts you don’t recognize, late payments on accounts you’ve always paid on time, erroneous derogatory marks and even incorrect personal information. Small errors, like a wrongly reported mailing address, shouldn’t affect your credit score. But an incorrectly reported account could.
If you spot an error, use the FTC’s guidelines for disputing it with the credit bureau. If that doesn’t work, you can also go directly to the information provider to see if they’ll stop reporting the incorrect information.
Spot future errors early on by getting a credit monitoring service, like Credit Karma’s free one. You’ll be alerted to important changes on your credit report and can act quickly if you don’t recognize them.
One of the most important factors of your credit score is your average credit card utilization rate. This percentage shows creditors how much of your available credit you’re using. Ideally, you should keep this number to less than 30 percent for good credit health.
One way to ensure your credit utilization stays low is to get higher credit limits on your credit cards. This should not lead you to spend more on your cards; it should just give you a nice buffer to stay well below a 30 percent utilization rate.
Most credit card issuers review and raise credit limits every six months or so. If it’s been a while since your last credit limit increase, try the direct approach. Call up your credit card company to request one, calling out your responsible credit behavior. Keep in mind that a request like this can sometimes result in a hard credit inquiry, which will ding your score a few points.
Unless you have a really good reason for closing out an old credit card account—like a high annual fee, for instance—keep these cards open and active. Creditors like to see long credit histories, especially if they’re clean. But it’s not enough to just keep old cards open; you also have to use them. The reason for this is that some credit card companies will close out inactive cards or at least stop reporting them to the credit bureaus. This can unexpectedly reduce your utilization rate, too.
Make a small purchase or two on your oldest card, or set up a recurring charge like a gym membership. Just make sure to pay off the balance each month.
Bottom Line: This should give you a good start in improving your credit health. Of course, make all of your bill payments on time; that’s the best way to maintain good credit health once you have it.
Bethy Hardeman writes on credit, personal finance and the economy for CreditKarma.com, a free credit management website that helps more than 8 million people access their credit score for free.
Bethy Hardeman is not an Allstate employee and does not represent Allstate. She did not receive monetary compensation for this post.