September 20, 2021• 6 mins
It’s important to understand your credit score, how to check it, and how to maintain a good credit score and credit history.
You may know that credit scores typically range from 300 to 850, and you may have some idea of the habits that will get you a better score. But do you know what the top two factors are? Keep reading to find out – along with what to do to maximize your score in those areas, and what the other factors are.
You can also learn more about the basics including what is a credit score and how to check your score for free.
FICO and VantageScore, the two most common sources of credit scores, both indicate that your payment history is the most important factor in your overall score.”
When you pay your bills and loans on time – including by making the minimum payment or paying your balance in full – your credit score goes up. When you don’t pay on time or when you pay less than the minimum payment, it goes down. FICO and VantageScore, the two most common sources of credit scores, both indicate that your payment history is the most important factor in your overall score.
Pay all your bills on time, and pay at least the minimum balance. The less you pay (below the minimum) and the later you pay, the more your score will go down.
To pay your bills on time, mark your calendar with a reminder. Use online banking or Bill Pay to set up recurring payments. Ask your creditor if they will change your due date so it matches when you get your paycheck. Many banks and credit unions also set up the ability to have your credit card automatically paid in full each month out of your checking account – even an account at a different institution.
Known as “credit utilization,” the amount of your available credit that you actually use is the second most important factor in your score, according to FICO and VantageScore. In a nutshell, your credit utilization is the percentage of your credit limit that you use at any one time.
For example, if your total credit limit across your credit cards and other loan accounts was $12,000 and you had outstanding balances totaling $4,000, your credit utilization would be 33%. In this example, the utilization of 33% is slightly higher than the recommended maximum of 30%.
Use no more than 30% of your available credit at any one time. Keeping tabs on your total balances owed, setting up automated balance alerts via text or email, or making extra payments before your due date are all ways to stay under 30%.
There’s a few other factors that also affect your score, and these are worth paying attention to, but they don’t affect your score nearly as much as the main two factors.
The total amount owed in debt will affect your score, and your score will be better if your total debt – especially for unsecured loans like credit cards – is going down over time.
Every time you apply for a loan or credit card, this creates a “hard inquiry” on your credit report – which lowers your score by several points. Over time, these inquiries fall off, and other factors may raise your score again. In general, it’s not a good idea to apply for too many new loans too close together.
The longer your loan and credit card accounts have been open, the better your score. That’s why it’s often a good idea to keep old accounts open unless there’s some good reason to close them, such as a temptation to overspend using that account or a very high annual fee.
Typically, it’s best to have a mix of credit types – including accounts with a fixed number of payments (like car loans and mortgages) along with accounts with variable payments like credit cards.
Not all financial actions affect your credit score. Here’s some things that won’t affect your score (although some of these may appear on your credit report and/or be available to companies that check your credit):
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