Consumers who know how to maintain good credit have a real advantage when it comes to their finances. They know what to do -- and what not to do -- to keep a good credit score. Here's what every consumer needs to know about credit protection. Following this advice might also lead to a jump from good credit to excellent credit over time.
How to Maintain Good Credit Standing
There are two golden rules to keep in mind when it comes to protecting credit. The first rule is to pay all the bills on time. This means every single bill, including cell phone and utility bills. Many consumers are unaware that a delinquent utility bill could be reported to the credit bureaus. If it is reported, it can lower your credit score because payment history is an important factor in score calculations.
The second rule is to keep low balances on credit cards. There's something called a "credit utilization ratio" and it's the amount of credit you've used compared to the amount of credit you have available. The standard advice is to maintain a ratio of less than 30 percent. However, to really bump up your score, keep your ratio under 10 percent.
Now, this doesn't mean it's okay to carry a balance. The entire balance should be paid off by the due date. It's a myth that carrying a balance from month to month is required to generate or improve a credit score. Using a credit card for purchases, however, is required to generate a credit score. But then pay off the bill in full every month because, frankly, it's the smart thing to do. This strategy results in a credit score improvement over time and no interest is paid.
What Are the Benefits of Having Good Credit?
Consumers who know how to how to keep good credit have access to pretty good credit cards and loans. And they are also unlikely to have problems renting a home or an apartment as long as their income is sufficient.
However, they will not be offered the very best rates on credit cards, because those are reserved for consumers with excellent credit. But on the positive side, good credit is just a step away from excellent credit and the better deals that come with that credit standing.
So while having good credit is admirable, those with excellent credit save more money. The good news? Those who practice the two golden rules described in the previous section will see their credit scores improve over time. With patience and persistence, a good score can become an excellent credit score.
How Excellent Credit Saves Money
Let's say that a consumer with a good credit score obtains a 30-year, $250,000 mortgage. According to the loan savings calculator on myFICO.com, this consumer will pay an estimated $11,204 more over the life of the loan than a consumer with excellent credit. That's a pretty significant chunk of change.
In addition, a consumer with excellent credit will save more on personal loans, auto loans, and even on things like health, car, and life insurance. And guess what? Consumers who know how to maintain good credit will eventually end up with excellent credit. It takes a little time and self-discipline, but the savings make it worth it.
Anyone who would like to get a snapshot of their current standing can do so with LendingTree's Free Credit Score, which uses VantageScore 3.0. And there's no need for anyone to worry about this impacting credit scores. This is what's called a "soft inquiry" and it has no impact on credit scores.