After payment history, credit utilization is the next significant factor that affects your credit score. It's tempting to use your high credit limit to make large purchases and pay them off over time, but it's a bad idea. You'll end up paying interest, and your credit score will suffer immediate damage. Instead, keep your utilization under 30% of your overall available credit for an optimal credit score. If you're currently using over 30% of your available credit, paying it below that threshold will rapidly improve your score.
One of the easiest ways to improve your credit score without even making a payment is to reach out to the credit card companies and ask for an increase in your credit limit. When your credit limit goes up, your utilization immediately improves, and your score increases. If your history of on-time payments is good and you've maintained a reasonable credit utilization ratio, at least some of your creditors are likely to increase your limits. Either way, it doesn't hurt to ask.
Whether you want to improve a less than stellar credit score or sustain a perfect one, it's essential to keep the balance on your cards as low as possible. Your card balance weighs heavily on your score, and your total utilization on a single card should not exceed 10% from month to month. Ideally, pay your balance in full each month. This approach helps you avoid paying interest, and it's one of the best ways to make a substantial difference in your score.
A respectable credit score is essential if you plan to purchase a home or vehicle or qualify for a personal loan. Additionally, your credit can even affect your ability to get a job, as many top employers now check prospective employees' credit. Over time, good credit will save you hundreds or even thousands of dollars in interest charges. Someone with excellent credit always gets better financing rates because creditors consider their risk of default minimal. On the other hand, those with poor credit scores are seen as a higher risk, leading to higher interest rates throughout the loan duration.
As far as credit bureaus are concerned, the more credit accounts you have open, the better. Having as much available credit as possible (even if you don't plan to use it) is key to achieving an excellent credit score. Closing an account will lower your available credit, negatively impacting your credit utilization rating and your score. Additionally, the credit bureaus' algorithms will score points for long-standing accounts, so keep those old accounts up and running.
Rebuilding your credit can be a challenge, but it's never too late to start. With time and discipline, you'll begin to see results. Paying down your existing debt as quickly as possible in large sums is the fastest way to improve your score, but you might find that you still have a way to reach your target score. If you haven't already, set up auto-pay for all your monthly expenses, so your credit never takes a ding from a late or missed payment. Over time, your score will continue to improve.
You may think you can achieve excellent credit by having a credit card or two and keeping them paid off. Unfortunately, timely payments are only one piece of the puzzle. Credit bureaus prefer to see a diverse mix of credit accounts on your report with a high combined credit limit. This means the more credit accounts you keep open, the better your score. Bureaus also like seeing that you have experience with multiple forms of credit, so having open loans in addition to credit cards on your report is a plus.
One in four credit reports contains errors but finding and fixing these mistakes can be tricky and time-consuming. Credit repair companies work with you to locate, correct, or remove mistakes that negatively impact your credit report. In some cases, teaming up with a credit repair company can quickly increase your score. These companies also offer other valuable services like credit score monitoring, personal finance tools, and identity theft insurance to help you gain and maintain a good credit score.
When it comes to achieving great credit, using multiple different lines of credit regularly is fundamental. An easy way to accomplish this without accidentally missing payments is setting up recurring monthly payments on various cards and setting up autopay for those cards with your bank. In addition, putting smaller payments like monthly Netflflix charges on older cards you barely use is a great way to keep that line of credit active and ensure you're getting top marks on credit diversity from the bureaus.
Payment history is the most significant factor credit bureaus look at and hugely impacts your creditworthiness and score. Paying your monthly bills on time, every time, is the most critical action you can take to improve or maintain your credit. A history of even one late payment can drag your score down for over seven years. If you have a late payment that's been outstanding for more than 30 days, call the creditor immediately. They may be willing to forgo reporting the issue to the credit bureaus if you can work out a solution with them.
Building your credit is a process that takes time, but where to begin? Traditional unsecured credit cards are hard to get without a credit history, so applying for a secured credit card is a significant first step toward building a positive credit score. Secured credit cards require an initial deposit that the issuer holds. Another way to establish credit is to take out a small loan with a co-signer who has good credit.