3 things to remember when your credit improves

By Justin Boyle

I traveled back to my hometown for an extended holiday this winter, and it isn't a full trip home without the whole crowd of my aunts and uncles standing in coats and hats around the brick firepit outside, drinking whiskey by the glass and jawing loudly about one thing or another deep into the darkness of the early morning.

One of my uncles has long been the butt of jokes among his siblings for some hilariously bad mistakes he'd made with money in his 20s. This year, though, he put the fun on ice -- he'd been smarter than ever with his money over the last several years and things had really turned around.

Hang on, he said amid chuckles of disbelief, look at this. He then reached into an inside pocket of his jacket and pulled out a stack of envelopes.

"Look," he said, "they're trying to give me platinum cards!"

If you've been doing all the right things with your own credit cards -- keeping tabs on your credit score, paying your bills on time, staying well below your limit, and so on -- then sooner or later you'll also find yourself with better credit than you've ever had. Here are some tips to help you hang on to it once you get there.

1. Resist new credit opportunities

As you might expect, the best credit card reward programs and low interest credit cards are often reserved for customers with credit ratings that prove them to be an acceptable lending risk. So once your credit gets into shape, you're likely to start getting some tantalizing offers.

For instance, you'll qualify for lower rates and higher limits on practically everything, so you might be tempted to run out and buy some new sexy or prestigious thing -- a new car, say -- that you absolutely don't need. Sure, if it's been time for a new car for a while but the available financing rates were just too rich for your blood, then it's a great time to go shopping. Just remember that lower interest rates don't necessarily make it smart to take on a $30,000 mountain of debt.

2. Refinance with caution

One way to make your newly improved credit work for you is to refinance your mortgage. Today's mortgage rates may allow you to reduce your rate pretty substantially, but if you feel uncertain about the process, it might be wisest to first invest a little cash in a consultation with a financial adviser you can trust. Plunging headlong into the wilds of big-ticket loan refinancing without a little help from an expert can be like jumping into a canoe on the Amazon without a river guide.

You may not need contracted professional assistance if you're a dab hand at independent research, but one way or another you'll need an arsenal of knowledge and patience at your disposal to find the best deal available. Make sure you read all the fine print and understand the terms in full before committing to anything, and do as much shopping as you can before applying -- potential lenders tend to make hard inquiries on your credit, which can ding you by a handful of points each time.

3. Retain the habits that got you there

Life with excellent credit can feel pretty different, and the temptation to abandon the habits that got you there may appear. Perhaps the most important thing to remember as your credit score climbs to tip-top levels is that once you get there, however much the options before you may change, your tried-and-true personal finance habits should stay exactly the same.

Sure, a drop in rates can signify a good time to make a few credit-related changes, but make them slowly and with caution. Keep yourself from thinking that you can safely carry more debt, now that you're suddenly getting offers for all those low-interest credit cards. If you haven't already, consider building an emergency fund in a high-yield savings account so you won't need to turn to credit in your next moment of financial crisis.

My uncle seems to have learned his lesson, anyway. After waving around all those glossy envelopes (and getting a good laugh from his brothers and sisters), he opened them, took out the dummy cards and some other potentially toxic stuff, then threw the applications into the fire. A little dramatic, maybe, but it got the point across.