Always pay your bills on time. This seems intuitively obvious, but it bears reminding. Otherwise, we wouldn’t have a credit problem now, would we? Payment history alone comprises 35% of your score. This is the most significant and wisest thing you can do. If you happen to be behind, catch up and stay up.
Increase the length of your credit history. This accounts for 15% of your score. A sure way to hurt your score is to cancel an old card or suddenly take on a lot of new credit in a small time frame because it lowers the overall age of your accounts. Contrary to popular belief, you do want credit companies and potential lenders to see your history (a history of paid balances).
Keep your credit card balances to a minimum. Again, seems obvious, but how enormous or miniscule your balance is accounts for 30% of your score. It would be best to work to keep the amount you borrow below 25% of your available credit. Even if you’re good about paying off your cards at the end of the month, credit companies and potential lenders will see whether or not you are a big spender, which may make them uncomfortable.
Keep new credit requests low. This makes up another 10% of your score. It is always a “turnoff”, for lack of a better term, to credit card companies and potential lenders if your history says you’ve constantly been asking for funds, and a lot of funds at that. Remember this: if a potential lender asks for a copy of your credit report, an inquiry is recorded. Do not apply for new credit cards just before applying for a loan. Never make such applications close together.
Maintain different types of installment and revolving debt. This makes up the last 10% of your score, and depends on what type of credit you use. How you handle credit cards (revolving debt) usually matters more than car loans or mortgages (installment debt).
Tips & Warnings
- In conjunction with step 4, you can ask the three major credit reporting agencies- Experian, Equifax, and TransUnion- to stop unsolicited credit offers.
- Try to keep credit card purchases low. This makes what you spend easy to pay off (step 1), resulting in a lower monthly balance (step 3). Also, you’d be spending less because of the small nature of your purchases; less spent = less needed = less wanted (step 4).
- Be sensible, please! Credit cards can be dangerous, but necessary. Never spend during the month what you doubt you might have at the end of the month.