Here are the “7 Commandments of Credit”:
1. Know Thy Score.
Credit scores range from 300 to 850, and the higher the score, the better you are. They’re based on whether you’ve paid your mortgage, car loans, credit cards, and other debt on time in the past. You’ll need a score of at least 620 to qualify for a home loan and 740 to get the best interest rates and terms.
You’re entitled to a free copy of your credit report annually. Access all three versions (Equifax, Experian, and TransUnion) of your credit report at http://www.annualcreditreport.com. Review it annually to ensure the information is accurate.
2. Thou Shalt Correct Errors.
If you find mistakes on your credit report, write a letter to the credit reporting agency explaining why you believe there’s an error. Send documents that support your case, and ask that the error be corrected or removed. Also write to the company, or debt collector, that reported the incorrect information to dispute the information, and ask to be copied on any materials sent to credit-reporting agencies.
3. Thou Shalt Pay on Time.
Even a few late payments can really damage your credit score. The easiest way to make a big difference in your credit score, without altering your spending habits, is to pay all your bills on time.
4. Thou Shalt Use Credit Wisely.
If you have the ability to pay your credit card bills in full every month, do it. If you can’t do that, pay as much over the required minimum payment as possible to begin chipping away the debt. Stop using your credit cards to keep your balances from increasing, and transfer balances from high-interest credit cards to lower-interest cards.
5. Take Care With Thy Length.
Credit rating agencies also consider the length of your credit history. If you’ve had a credit card for a long time and managed it responsibly, that works in your favor. However, opening several new credit cards at once can lower the average age of your accounts, which pushes down your score. Likewise, closing credit card accounts lowers your available credit, so keep credit cards open even if you’re not using them.
6. Don’t Use All Thy Credit.
Credit scores are also based on how much credit you use compared with how much you’re offered. Using $1,000 of available credit will give you a lower score than having $1,000 of available credit and using $100 of it. Occasionally opening new lines of credit can boost your available credit, which also affects your score positively. Keep running balances on credit cards below 20% (i.e. $200 balance on a $1000 card).
7. Have Patience.
It can take time for your credit score to climb once you’ve started working to improve it. Keep at it because the more distance you put between your bumpy credit history and your current good payment record, the more your credit score will continue to improve.