A working knowledge of our credit system is something that should be included in curriculums across the country and yet, few if any schools are making the effort to educate their students on how to maintain their financial health. Knowing how to check your own credit reports and how to accurately read them should be a priority for every consumer in the United States and sadly, less than 50% of residents have ever even looked at their credit reports. Of those people, it is estimated that 90% of them don’t even understand how to interpret their credit reports.
It’s not uncommon for people to wish for perfect credit so that they can automatically be approved for anything they apply for, whether it be a store credit card, a car loan or a mortgage. For that dream to come true, though, people need to know what perfect credit really is, and how they can get it.
some of what you read here may not initially make sense. There are some common myths when it comes to credit, so sit back, relax, open your mind, and get ready to learn.
Maintaining the proper mix of accounts
For optimal credit, you will want to have the proper mix the following account types. Too many of some types of credit will hurt your credit scores.
One to two mortgages appearing on a credit report is the ideal way to go. Having at least one mortgage loan will impact your scores tremendously and if you don’t have any mortgages at all, that can be something to strive to achieve.
Installment loans, such as car loans, can boost your credit rating if you have between one and three loans. Too many installment loans can cause a negative effect, so minimize them if you can. Other kinds of installment loans, like store furniture loans, don’t have the same impact on your scores as the larger installment loans will. The smaller installment loans can be a great option for those with little-to-no credit but they don’t hold the same cache’ as an installment loan with a larger value, such as a car loan or student loan.
Having anywhere between three and five revolving accounts, like credit cards, can boost your overall credit rating. The affect on your credit will depend on the type of credit card used, and the amount of credit you are granted. Department store credit cards aren’t as helpful for your score as major credit cards are. The higher your credit limit, the more they will help your score.
With all the above, the more seasoned the accounts are the more weight they carry to affect your credit score. And when it comes to credit cards and store credit, you want to be sure that you keep your revolving balances below 50% of the available limit to maximize your credit. Be sure to keep in mind that once you cancel a good account, it will only remain on your credit for two years. If you cancel a seasoned account and it falls off your credit, your scores will most likely drop.
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