NEW YORK (MainStreet) — Excellent credit isn't about the big things you do once in a while. It's about the little things you do on a daily basis. It's an investment you make in yourself every time you pay a bill, or even every time you head off to the grocery store. If your credit is bad, you might be able to take steps to repair it, like paying off old debts or disputing dubious charges. But you won't be able to maintain it unless you engage in the behaviors that people with excellent credit do on a daily basis.
Investing Time in Your CreditMike Sullivan is the director of education with Take Charge America. He says that, first and foremost, to have excellent credit, you need to invest time. "People who have excellent credit check their credit on a regular basis," he said. "They're very alert to paying their bills on time. They become educated about the right things to do." All of that education, both about your own credit and what makes for excellent credit in general takes time. "It's like working out," says Sullivan. "If you work out five hours a week, it's not an obsession. But five hours a day might be a little much." In the case of checking your credit, it doesn't even take an hour a day.
Paying All Your Bills on Time All the Time
Paying your bills a timely fashion is the biggest factor in figuring your credit score. But what most people don't know is just how slim the threshold is. "Even having a 99.5% payment history is still considered just fair," says Greg Lull, head of consumer insights at Credit Karma. "You really have to have 100% on-time payments. Anything less than 97% is considered poor." And while you might not think that it is, from the perspective of credit reporting bureaus "missing one bill is a huge problem."
Using Credit for Everything
Once you learn how to use credit responsibly, Lull suggests that you use it for literally everything. The reason being two fold. First, you can get rewards points and cash back. "Anyone with a 680 can get a rewards card," he says. "It's free money and you usually get a bonus with it. Once you get that, open up another card and get that bonus too."
The other reason to use your credit for everything is that every month you're making significant payments on your credit card. "As much as I love the idea of having a zero credit score and walking away from banks, that's just not the world we live in," Lull said. He further notes that "if you use credit responsibly, just charge everything and pay it off every month." That's one of the best ways to get and to maintain an excellent credit score.
Awareness of Your Financial Decisions
Sullivan says people need to be aware of financial decisions that aren't immediately recognizable as being credit-related. "Being asked to cosign for a loan is a financial decision, but it's also a credit decision," he said. When you cosign for a loan, you've just taken a potential hit to your credit if the person doesn't pay back the loan. "When you agree to support someone else and give them money, that's going to impact your credit, because that's money you can't use to pay off your debts," he said. Think about every financial decision that you make in terms of how it's going to impact your credit. Because it can and it will.
Setting Your Credit Awareness on Autopilot
Sullivan suggests that people pull their credit report three times a year, because it's free. However, Lull notes that there are now free credit monitoring services that allow you to peek in on your credit whenever you want. The trick is to strike the kind of balance Sullivan talked about above. Spending ten minutes every week looking at what's going on your credit is a good use of your time and probably all the attention that is required. Look around and find a free credit monitoring service that's right for you, but also go ahead and pull your credit report three times a year. Leave yourself a calendar alert and attend to it.
Excellent Credit for Married Couples
Sullivan finally points out that if you live in a community property state, it's not just your own credit you have to look at -- it's your spouse's as well. "In a community property state, you might have just taken on a lot of debt by getting married," Sullivan says. "If you both apply for a loan together, you can get less favorable terms." This cuts to the heart of an earlier point. "Basically everything in life impacts your credit, and you have to be aware of it," he said.
--Written by Nicholas Pell for MainStreet