Tips for Developing Good Credit Habits
INSURANCE INFORMATION INSTITUTE
New York Press Office: (212) 346-5500; media@iii.org
NEW YORK, February 25, 2010 鈥 The new , which took effect this week, keeps credit card issuers from imposing unfair interest rate hikes and hidden fees, but a good credit history is something that cannot be legislated, it must be built over time, according to the
探花精选 Information Institute (I.I.I.).
听
鈥淎 good credit history can reduce your auto and homeowners insurance premiums since many insurers offer discounts to policyholders with a proven track record of responsible financial behavior,鈥 said , vice president with the I.I.I. 鈥淭hat鈥檚 important, especially in today鈥檚 economy. Good credit can help you buy a home with a more competitive mortgage rate, too. It may also make you a stronger job candidate, as many employers routinely check a potential employee鈥檚 credit history as part of their hiring process,鈥 Worters explained.
听
There are various strategies consumers can use to manage their bills and maintain good credit, including:
- Pay bills on time. The single most important factor that affects your consumer credit report is your record of paying bills promptly. Late payments and delinquent accounts can have a major negative impact on your credit report as well as giving creditors the right to increase your interest rates. The amounts owed on your outstanding credit cards are examined closely, as well. In addition, the number of delinquent credit card accounts and the length of time the account went unpaid also factor into a consumer credit report calculation. The goal for consumers should be to maintain a long history of reliable bill paying behavior.听
- Review your credit report to make sure it is accurate. Report any inaccuracies or outdated items which appear on your credit report to the credit rating agency. A small error may not have much effect, if at all, on your credit rating. If an error is significant, however, it can make a difference. Reviewing your credit report will also reveal any suspicious activity on your credit cards, which can be an early indicator of identity theft. If you do find an error, you have the right to dispute any information in your credit report. By law, the three major credit reporting agencies must provide you with one free copy of your credit report annually, and must correct inaccurate or incomplete information at no charge to you. The three national credit reporting bureaus are: , and . Consumers can order their credit report from each of the three major credit bureaus at one time via the .听听
- Limit yourself to a maximum of three or four credit cards. Resist the temptation to open new cards in order to get discounts on store purchases or other one-time benefits. This can have an adverse affect on your credit rating鈥攁 large number of new inquiries on your report will make lenders think you are planning to run up a lot of debt.听
- Research the Annual Percentage Rates (APR) when applying for a credit card. The APR on a credit card can vary depending on your credit. Also, watch out for introductory APR offers, which often expire after a certain time period. The APR for cash advances can vary significantly, too. Some credit card companies charge a fixed rate, which means your APR can change, but only with a specified number of days notice. Other credit cards have variable interest rates, which change based on how interest rates are doing in general. Rates can also increase (known as a penalty rate increase) if you make a late payment, exceed your credit limit or bounce a check. While APRs are not currently given to credit reporting bureaus by credit card companies, and therefore cannot be explicitly considered when computing your credit history, it is in your best interest to pay off your balance in full each month to avoid racking up those high-interest charges.听
- Keep balances low and do not close established credit cards. Use no more than 30 percent of your available credit at any given time. If you decide to control your credit card use by cutting up a credit card, do not close the account as this will raise your balance-to-credit-limit ratio and can have a negative impact on your credit rating. Credit reports are based on factors including payment history, amounts owed, length of credit history, new credit and types of credit used. With regard to the latter, major bank credit cards for which a consumer has a good payment record are viewed more favorably than retail store cards, which generally carry a much lower credit limit.听
- Pay off cards with higher interest rates first. By doing so, you are saving money on interest and you will pay off the balance sooner.听
- Do not neglect rental or utility bills. While rental and utilities payments are not listed on your credit report, your landlord or utility company has the right to report your bills as delinquent to the credit reporting bureaus if you are late in paying these bills. If the bill continues to go unpaid, a judgment could be obtained against you in small claims court, and/or your utility bill account could be turned over to a collection agency. These blemishes can be as harmful to your credit report as the more commonly reported items such as late payments on loans or credit cards.听
- Deal with creditors and financial problems quickly. If you cannot afford to pay off your credit card balance, at least pay the minimum on all of your cards. Paying the minimum will keep your accounts in good standing even if you are not able to allocate much towards your total outstanding balances. Be sure to contact your creditors as soon as problems arise鈥攜ou might avoid a 鈥渂ad debt鈥 filing with a credit reporting bureau. If you own a home and are having trouble keeping up with your mortgage and loan payments, contact your mortgage lender as soon as you realize that you have a problem with making payments. Find your loan documents and read them so you know what your lender may do if you cannot make your payments. Learn about the foreclosure laws and timeframes in your state鈥攅very state is different鈥攂y contacting the State Government Housing Office. For more information contact the .听
听
听
Additional Resources
The I.I.I. is a nonprofit, communications organization supported by the insurance industry.