As soon as I finish sending my tax information to my accountant each year, I turn my attention to another task: an in-depth review of my credit. While I regularly monitor my personal and business credit scores online, I make sure I review my full credit reports — both personal and business credit — once a year to make sure there’s nothing amiss, as well as to identify areas where I could be doing better.
Though I try to be scrupulous about paying bills on time, I know that doesn’t guarantee everything will be OK. A few years ago, one of my mortgage companies reported that I had made multiple payments late — a serious error that almost stopped me from getting a low-rate car loan at the time. Last year those late payments popped up again, forcing me to go through the dispute process a second time.
More recently, I was the victim of identity theft. I found out someone opened a credit card in my name and the next day $400 worth of new men’s shoes were being delivered to them — just as I was learning about the new account. Thanks to credit monitoring, it was caught and shut down quickly.
Strategies experts use to keep their credit scores high
Checking and monitoring credit reports and scores is one way I keep on top of my finances. Here are some more strategies credit experts use to keep their credit in top notch shape.
Ask for higher limits
Levi King, CEO and co-founder of Nav, saw the credit limit on one of his credit cards implode during the financial crisis. He hadn’t missed any payments or done anything wrong, yet his limit was cut from over $20,000 to a mere $500. “I got caught in some algorithm,” he says.
As the founder of a company that helps small business owners manage and improve business credit, he knew it wouldn’t do any good to just get angry and cut up the card. He decided to ride it out. He knows a card that was opened years ago is a benefit to his credit scores and he also knows that credit policies change, and a “no” today could be a “yes” tomorrow.
His patience paid off. A few years ago he was successful in getting his available credit limits raised substantially, and a recent attempt to increase his available credit with this issuer got him over $100,000, plus a new card.
As long as you aren’t tempted to overspend, high credit limits on your credit cards can give you flexibility when you need to borrow, something that’s particularly helpful to small business owners like King who may need to act quickly if an attractive business opportunity presents itself.
Pay down credit card balances
Checking his credit scores regularly is a habit for credit scoring expert Barry Paperno, who worked at FICO for many years. He loves the fact that many of his credit card issuers provide him with free FICO scores, making it easy to keep track of his.
Because he pays on time and is generally conservative with credit, his scores tend to be strong. But before he refinanced his mortgage last year, he wanted to tweak it to make sure he had high enough credit scores to snag a low mortgage rate. His approach? To try to get all but one card reported with a zero balance on his credit reports.
“One thing I’ve found is that when your debt usage is already very low — in the single digits — the number of accounts with balances has an impact on the scores,” he explains. He and his wife Donna have several reward cards and try to use the one that will give them the most cash back for a particular type of purchase. They didn’t want to just pay off all their cards and stick to one, and lose out on higher rewards.
Instead, they continued to use their cards but got in the habit of paying off purchases online early. Paperno created a spreadsheet he’d review weekly so he knew what to pay when. The goal was to make sure when the balances were reported to the credit bureaus each month, only one card would show a balance. He said they didn’t quite achieve that goal (the timing was tricky) but they did come very close. And they got a great rate on their mortgage.
Paperno also tries to make sure he doesn’t neglect any of the cards he wants to keep. To keep accounts active, he makes sure he uses them from time to time. Issuers will sometimes close accounts that don’t have any activity, and those closed accounts eventually drop off credit reports.
Don’t be afraid of credit
As a credit card and travel expert, Jason Steele knows that if you want to leverage good credit to take advantage of rewards, you can’t be afraid of credit. “Some people will cancel their cards and avoid applying for new cards at all costs,” he says. “Instead, you should have 3-5 accounts open and in good standing, even if you rarely use most of them.”
Steele himself applies for several new cards each year. “This allows me to enjoy the latest, most competitive products while offering me generous sign-up bonuses,” he explains. Just keep in mind that each application creates an inquiry on your credit report. While inquiries only shave a few points off credit scores, you’ll want to make sure you apply for cards you really want — and that you’re most likely to qualify for.