# Credit Management: Expertly Manage (And Improve) Your Credit With These 7 Tips

In modern life, credit is all-important. From being able to attend college, purchasing a car to get to work, or taking out a mortgage on your first home, credit is what enables us to acquire something before we have the funds to cover it. Credit, when used properly, can be a great tool to help make progress in your life. Alternatively, poorly managed credit can create roadblocks and hinder growth.

That’s why good credit management is a stellar life skill. The better you are at managing your credit, the more credit, on better terms, you’ll be offered later down the line.

If you’re only just starting to think about managing credit then this article is for you. We’ll be covering:

- **What is credit?**
- **What is credit management?**
- **7 simple credit management tips**

Let’s jump straight to it!

## What is credit?

The word _credit_ can mean a couple of different things in the financial world. In this instance, we’re mostly talking about credit as the money that’s borrowed by you as part of an arrangement with a lender. The most common type of arrangement comes in the form of credit cards. Credit is used on the card to immediately pay for the purchase. This could be items of clothing, a swanky new laptop, or a car. It’s an expectation that this credit is paid back, usually with interest, in a reasonable amount of time.

There are other sources of credit, such as payday loan companies, peer-to-peer lenders, credit unions, and banks. Thinking about credit in this broader sense, and being able to successfully manage this credit means you’ll potentially end up with _good credit._ This means improved creditworthiness in the eyes of lenders like banks and credit card companies. It’s this management; how you use your loaned credit, that directly impacts your credit score, credit reports, and overall credit history.

## What is credit management?

In layman’s terms, _credit management_ is the act of, well, managing your credit. It’s about making proactive and successful moves to ensure you’re using your credit well. By doing this, you’re able to boost what is called your credit score. Upping your credit score enables you to move to a better credit score band. The Fair, Isaac, and Company (FICO) corporation created a system that determines the creditworthiness of a given borrower by assigning you a FICO credit score. This creditworthiness is detailed as a score band. There are five FICO credit score bands, namely “poor,” “fair,” “good,” “very good,” and “excellent.” As you can probably guess, the closer to “excellent” you are, the better rewards and opportunities credit lenders will offer you. This means having more impressive credit cards with lower interest rates and getting the mortgage you want.

With effective credit management, you’ll achieve a higher FICO credit score. With this, you can enjoy greater available credit, giving you a more flexible lifestyle with added opportunities. All this from simply having _“good credit”_. Credit management isn’t a one-off thing. It needs to be done over an extended period. Without continual review and improvement, your credit score and limit will stop increasing and may even decrease.

## 7 simple credit management tips

It’s here we get to the nitty-gritty of this article, where we tell you exactly how you can manage your credit score. Here are 7 top tips that will keep your credit scores healthy:

1. Use credit often, but as little as possible
2. Utilize less than 30% of your available credit in a month
3. Always pay back borrowed credit on time
4. Avoid too many credit applications in a short space of time
5. Monitor your credit statements each month
6. Dispute any errors on your credit reports
7. Consider a debt consolidation loan

### Tip #1: Use credit often but as little as possible

Tip #1 comes across as an oxymoron. What do we mean by _use credit often_ but _as little as possible_? Well, you want to keep your credit accounts active, which means using them regularly. Do this by spending a small amount that you can pay off each month. Inactive credit accounts will result in account closure. Once more, credit lenders are not required to notify customers of this closure when it’s due to inactivity. No credit account means no credit rating.

There are [five components](https://www.myfico.com/credit-education/whats-in-your-credit-score) used to determine your FICO credit score, and in this instance, we’ll focus on two, namely: Credit history length and your utilization rate. Your credit history length is a factor that makes up [15%](https://www.bankrate.com/finance/credit/what-is-a-fico-score.aspx) of your overall FICO score.

Utilization accounts for 30% of your FICO score. Having a utilization rate of 0 means there is insufficient data to determine your lending risk. Carrying even a small balance, say as little as 1% of your limit, will improve your utilization rate and overall credit score.

### Tip #2: Utilize less than 30% of your available credit a month

Tip #2 is about keeping an eye on your credit utilization ratio - a ratio that determines how much available credit you’ve used. Best advice states you should use 30% of your overall credit limit. Exceeding this level will harm your credit score.

### Tip #3: Always pay back borrowed credit on time

This is a big one - paying your bills on time every month is a crucial element for successful credit management. FICO puts the most importance on timely payments to determine your credit score. A payment that is 30 days late can cause a swingeing drop in your credit score and could lead to you being refused your next loan application. It’s generally recommended you pay your credit balance in full every month.

### Tip #4: Avoid too many credit applications in a short space of time

A key part of credit management is keeping your credit applications in check. Your credit applications will leave a footprint on your credit report. If you send too many applications in a short space of time, this indicates to the lender that you’re having difficulties with your credit applications.

### Tip #5: Monitor your credit account statements each month

Continuous credit account monitoring will help you better understand your credit history. Your credit history is a record of how you’ve managed your credit accounts. This may include both your current and past credit accounts, information on your payment history, and the total amount you owe.

### Tip #6: Dispute any errors on your credit reports

Monitoring your credit statements allows you to spot errors and keep on top of fraudsters. Fraudulent activity and technical errors can negatively impact your credit score. Look out for your creditor incorrectly displaying the amount of money in your account, and whether someone has used your credit account without your knowledge.

### Tip #7: Consider a debt consolidation loan

A debt consolidation loan is a loan used to combine your existing debts into one pot. All you need to do is apply for a loan for the amount you owe in existing debt, and if approved, use those funds to pay off your other borrowings. You’ll then pay back this loan over time, usually in monthly payments.

In conclusion, when it comes to consolidation loans, take the philosophy of _only open a consolidation loan account if needed_. Whether they improve your credit score is dependent on your unique circumstance.

This brings us to the end of our 7 top tips for effective credit management.