Maintaining Credit History in the USA

While it is important to establish a credit history, it is even more important to maintain a good credit history throughout your life. Your credit is based on a lot of factors such as payment history, the length of time you have had credit, outstanding balances and loans.

The following tips will help you maintain a good credit history:

• Don’t keep too many credit cards or other lines of credit open. Every time you apply for a loan or credit, your credit score is reduced by 10 points.
  
  If you are not going to use a particular card, promptly close the account and ask the creditor to inform the credit bureaus. All open accounts are considered potential debt.
  
  
• Pay in your full balance every month. If that is not possible, pay as much as you can and more than the minimum payment due. Don’t spend an amount of money that you can’t afford to pay back on time. 
  
  
• Spend money wisely. Consider charges on your credit card as if they were deductions from your checking account. Spend only what you can afford to quickly pay your balance back. Keep track of your spending by logging into your credit card company’s website and monitoring your activity. Many credit cards have introductory low interest rates. However, after some time, interest rates may skyrocket, so you may not be able to pay the charges back if you overspend. 
  
  
• If possible, stay at the same residence for a long time. If you recently moved, you are less likely to get a loan than if you had lived at the same place for many years, as it represents stability. People who keep moving to different places all the time are more likely to default on their loans. 
  
  
• If possible, stay with the same employer for a long time. If you keep switching jobs often, it shows instability, and you may be more likely to default on your credit. 
  
  
• You should not let the balance on your credit card go over 50% of the credit limit. 
  
  
• Pay all your bills on time. This includes phone bills, electricity bills, gas bills, doctor’s bills, credit card payments, loan installments, apartment rent, traffic tickets, etc. Late payments or non-payments can ruin your credit history. You may have trouble getting home mortgages, buying a car, renting an apartment, getting utility service, etc. Negative information on your credit report may be present for up to 7 to 10 years. 
  
  
• If you have any bankruptcies, foreclosures, or arrests, it will ruin your credit history. Therefore, avoid these at all costs. 
  
  
• If you financed a loan at a higher interest rate because you had no credit history, not enough credit history, or a poor credit history, you should make timely payments for 6 months or so and then try to refinance the loan. You may be able to get a lower interest rate. However, look at the pros and cons of refinancing. There may be extra fees for refinancing, depending on the type of loan. 
  
  
• Only carry cards you expect to use. Keep others in a safe place. Make a list of account numbers and phone numbers for all the cards you have. If you lose your wallet and cards, this list will come in handy. If you report the loss before your card has been misused, you have no liability. If you report the loss after your credit card has been misused, your liability is usually $50 or sometimes $0. 
  
  
• Even if you are getting a slightly better deal (less or no annual fee, less interest rate, more cash back, etc.), don’t make the habit of closing older credit card accounts and opening new ones. It is better to have accounts that have been open for a longer duration. 
  

• Credit Bureaus:
  In the U.S., there are three major credit bureaus: Equifax, Experian, and Trans Union. 
  
  They collect information about you from prior creditors and lenders and they sell that information to future creditors and lenders. That is how they make money. 
  
  You can get a free credit report from each of the credit bureaus once a year. You can visit AnnualCreditReport.com to order your free credit report, which is a central online portal of all 3 major credit bureaus. However, free credit reports do not show your credit score. You may be able to order the credit reports, including a credit score and other additional information, for a one time fee. 
  
  You must review your credit report carefully. Credit reports generally show any credit cards you have and their limits, your payment history indicating late payments, any loans you have and their payment history, any delinquent payments, any payments that went to collection agencies, and any court dealings, such as a divorce, liens, bankruptcy, etc. All negative items stay on your credit report for 7 to 10 years. 
  
  If you see any discrepancies, contact the creditor immediately and try to get it corrected. Also, contact the credit bureau to dispute the information. It is best to have it corrected as soon as possible. However, credit bureaus often refuse to correct the information based on the data you provide and require that your creditor contact them. This can be a long, time consuming, and frustrating experience. 
  
  You may also notice that there are various spellings or versions of your name in your credit report. This is due to incorrect information being entered into your report by employees. This is usually not a problem. However, when taking out a big loan, such as a home mortgage, a lender may ask you to sign an affidavit that certifies that Name A, Name B, Name C, Name D and so on are the names of one and the same person.
  

• Credit score:
  Your credit score reflects your individual behavior regarding how you are managing your finances, especially borrowing and repaying. There are many factors that affect your credit score. Some of them are:
  • Number of credit accounts
    
  • Age of credit accounts
    
  • Amount owed on all credit accounts
    
  • Total available credit limit
    
  • Ratio of credit balances vs. total available credit limit
    
  • Number of credit accounts opened in the last 12 months
    
  • Total debt
    
  • Promptness in paying bills
    
  • Negative factors such as collection accounts, bankruptcies, loan defaults, foreclosures, derogatory public records, etc.
    

• House Loans:
  Many people with little or bad credit history may avoid buying a house because they think they may not be able to get a loan. However, many lenders are willing to offer loans because your house serves as excellent collateral for the loan they give you. Therefore, if you are not able to pay your mortgage on time, they can foreclose your home, sell it, and raise money. 
  
  However, lenders are in the business of lending money. It is too cumbersome and expensive for them to foreclose on a home, sell it, and raise money. Prior to 2008, many lenders gave loans to people who barely qualified. Due to this, many houses were foreclosed upon. This situation was called a lending crisis. Since then, financial institutions like Fannie Mae, Freddie Mac, and the government have become very strict in approving home loans. Many people who would have qualified for a home loan easily a decade earlier no longer qualify.
  
  You can increase your chance of getting a home loan if you have a large down payment.
  

• Identity Theft Prevention:
  If your identity is stolen, the thief can access your credit cards, get loans and never pay them back. That would completely ruin your credit history. 
  
  In order to prevent identify theft, you should shred your financial documents or any private information rather than just throwing them in the trash. 
  
  You can also buy identity theft prevention services like LifeLock who take several preventative measures, like ordering your credit reports, placing fraud alerts in your credit report, and other related services. They charge an annual fee.