How to Maintain Good Credit

Susan Weber
Brad Stroh, Credit Expert

You can quickly get into major debt problems if you don't know how to maintain good credit by being credit-smart. In this interview Brad Stroh, co-CEO of Bills.com gives easy-to-follow tips on managing your credit, avoiding the common credit mistakes, and shares five key steps to become credit-smart.

Interview with Brad Stroh, Credit Expert

Why is it important to be credit-smart?

A consumer is credit-smart if they understand the pros and cons of using credit, the ramifications of using it improperly, and if they work hard to maintain their credit rating. A credit-smart consumer:

  • Understands that credit cards are primarily convenience items, not tickets to live beyond one's means and purchase whatever they want.
  • Understands that it is not necessary to carry more than one or two credit cards and they never should carry a credit card balance.
  • Understands the differences between "healthy" and "unhealthy" debt. "Healthy debt":
    • Is for a limited amount that won't keep increasing (a revolving account, such as a credit card, is not limited, and the credit balance increases as you add more to it).
    • Has a stable interest rate, at a reasonable, predictable level.
    • Has regular payment amounts that are manageable within a budget, and can be paid on time to avoid late fees and penalty interest-rate increases.
    • Has been acquired for a purpose that an average person would say was sensible such as buying a home. (A good test is whether you will remember in six months why you have the debt -- using credit for coffee drinks or CDs usually can't pass this test.)

    What can happen if you are not credit-smart?

    Consumers who are not credit-smart and don't maintain good credit will see the impact in almost every area of their lives. They might see:
  • Lower credit scores - The higher your credit score, the better interest rate you can receive on a loan, which can be especially important for major purchases, such as for a home or car. A credit score can even mean the difference between renting an apartment or not.
  • Difficulty getting credit - Poor management of credit may cause you to not be able to get credit when you really need it.
  • Severe debt hardship - With recent bankruptcy reform, it is harder to declare bankruptcy, so you face very difficult challenges in climbing out of spending and debt patterns.

What is the #1 mistake credit consumers make?

Too many consumers don't pay their credit card bills in full each month, and do not understand the ramifications of making only minimum payments. The main disadvantage of paying just the minimum is that the original purchase will end up costing significantly more than its purchase price.

What are the five key steps to become credit-smart?

  1. Educate yourself - Obviously, I suggest Bills.com, but there are many additional excellent books, TV programs, and websites out there as well. Once you are armed with information on how to maintain good credit, it's much easier and much more fun to make financial decisions and conduct day-to-day finances.
  2. Pay bills on time and pay off credit card balances in full each month - On-time payments are very important to good credit. Paying bills on time for as little as one month can raise a modest credit score by 20 points. If you can't even make minimum payments, call creditors and ask for temporary hardship status. Some creditors will work out payment plans.
  3. Understand, monitor, improve, and maintain your credit score - Basically, it comes down to whether you pay, and pay on time, and whether creditors have reason to believe you might be overextending yourself. The more responsible you are with credit, the better your score will be.
  4. *The median United States credit score is about 725.
  5. *A score below 680 usually results in a borrower being charged a higher interest rate or being denied credit.
  6. *Correct mistakes on your credit report. Under the Fair Credit Reporting Act, the credit bureaus must investigate any disputed items and remove them from the credit report if they cannot be verified. If you disagree with the results of a credit bureau's investigation, you can ask the bureau to include a statement of dispute in your file and your future reports.
  7. Get out of credit card debt - Stop charging. If it means cutting up cards, giving them to your mother, or freezing them, do what it takes to stop using them. Trade a credit card for a debit card if you need an immediate-impact check. Try to handle debt issues yourself, because it protects your credit score. But if that's impossible, understand the debt relief options - credit counseling (almost half the industry has recently been found to be abusing non-profit status by the IRS), debt consolidation, and the relatively new (and legit) debt resolution alternatives.
  8. Budget - While budgeting software exists for those who want and like to use it, it's simple and straight-forward to do with a piece of paper. The key is to create a realistic budget, including expense categories for necessities (both fixed and variable) and extras - and commit to stick to it.

For More Information on How to Maintain Good Credit

Brad Stroh and his co-CEO Andrew Housser are the co-founders of the Freedom Financial Network, LLC, and its consumer personal finance portal Bills.com, where consumers can learn about and comparison shop for credit, loan and insurance products and services.

How to Maintain Good Credit