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Achieving and Keeping a Healthy Credit Score

We feature guest writer, Raúl Menéndez, who is an Outreach Specialist with Money.com. Today’s post may seem a little different than our usual theme on maximising earning rewards. Raúl will be sharing his experience of going from a low credit score to a high one, and then how to maintain it. So the credit card strategy behind going from a low to high credit score is very different than for someone who already has a strong score looking to leverage for more rewards (which is a post for another time!). For now, thank you Raúl for taking the time to share your knowledge with us, we really appreciate it!

Part of being a responsible adult is keeping track of your credit health. My credit journey began four years ago and I have been working really hard on my credit score ever since.

It wasn’t exactly a walk in the park but I was able to elevate my score from zero to 764 this last year. I am finally happy and comfortable with my credit but I understand there’s still a lot of work to do.

As a person who’s been on both ends of the spectrum, I know how rough it is to try to get any financial decision approved with a low score. That’s why I want to talk about credit health and
what to do to maintain it. The more you know about what goes into your credit score and how it affects your finances, the better.

The Five Major Data Points

Just like the five D’s of Dodgeball (dodge, duck, dip, dive and… dodge) there are five important bits of information that the credit bureaus collect to determine your credit score.

  • Level of Debt
  • Credit Age
  • Recent credit
  • Mix of credit
  • Payment History

Let us say right now your credit score is zero and you’ve never had to use credit for anything in your life so far. The first thing that you must do is explore your options, by trying to find information on secured credit cards or personal loans to get started with making payments on time. Right now, these secured credit cards don’t have a lot of benefits. Down the line you’ll be able to apply to more credit cards with much better benefits.

Experian, Equifax and Transunion just want to know one thing – are you efficient at paying on time. As long as you show them that, your score will only go up with time. This is why it is
recommended to stay within your means, try to use less than 30% of your available credit any given time.

Make sure to pay your bills on time, all of them. There are some bills that do not get reported to credit bureaus but I recommend you always pay on time regardless. This also goes in hand
with what I mentioned before, try to keep your credit balances low. This way it is more manageable when it is time to pay one or eventually, multiple credit cards at a time.

With that in mind, I always recommend you keep your credit cards active, even if they are old accounts. When you close a credit card, your credit card issuer no longer sends updates to the
three credit bureaus and the credit scoring formula places less weight on inactive accounts. After 10 years or so, the credit bureau will remove that closed account’s history from your
credit report. In some cases, losing that credit history will shorten your average credit age and cause your credit score to drop. Closing a credit card also reduces your available credit which
could impact what I mentioned earlier of using only 30% of your balance across the board.

What else affects your credit score

Credit card balances are not the only accounts that influence your credit score. Loan balances and lines of credit also impact your level of debt. Having too much debt can cost you points on
your credit score. The lower your debt, the easier it will be to maintain a good credit score.

Another good point to keep in mind is to limit your applications for new credit. Some companies will not approve you for a credit card if you have applied for more than 5 credit cards
in the past two years. Too many credit inquiries—whether they be for a credit card or a loan— can also have a negative impact on your score, so make sure you are only applying for credit
when it really is necessary. Opening a new credit account also lowers your average credit age.

Just because you do everything right with your credit does not mean everyone else will. Mishandled payments at the bank, identity theft and credit card fraud can lead to inaccurate
information on your credit report.

How to Stay on Top of your Credit Score

You finally have great credit, now comes the tricky part – keeping it that way. Here are some more tips to stay on top of things:

  1. Check your credit report weekly and set up payment reminders on your device
  2. Pay more than once on billing cycles
  3. Avoid applying for more credit cards until some time passes between them
  4. Maintain older credit cards and do not close them
  5. Pay down maxed out cards first

It’s important to keep an eye on your credit. Checking your credit report throughout the year helps you stay on track of your credit and detect any mistakes so you can correct them quickly
and maintain a good credit score. Follow these tips and have patience and I am sure you will raise your credit score in no time.

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Pointshogger aims to provide analysis and updates on earning loyalty reward points and maximizing the value of your points. We hope to inspire our readers to experience the joy of travel and make the most out of what they've already got!

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