Keeping a credit score high depends on a variety of factors, and responsible use of credit cards is an effective way of keeping a score high. Rebuilding credit or increasing a credit score begins with the good use of credit cards, and certain habits can have a positive impact on long-term credit score goals. Here are some general rules that can help increase your credit score.
Always Pay on Time
One of the most devastating things that can reduce your credit score is a history of late payments. Paying on time demonstrates to lenders that you understand how credit works and know how to use it responsibly. Making just one late payment may result in that black mark staining your credit report for up to seven years, which can complicate matters when you try to apply for a major loan like a mortgage or try to get a car loan with a low interest rate.
According to myFICO, the official website of the Fair Isaac Corporation, which is the company that calculates your credit score, credit payment history has a 35% impact on your score.
The impact on your credit score of a late payment will lessen over time, but it may take two or three years before your credit score increases after a late payment. Call your credit card company or lender if you have a good history of on-time payments and mistakenly pay late one month. Your lender or bank may agree to keep the late payment from appearing on your credit report.
Keep Balances Low
One of the factors that may impact your approval or denial on a bank loan, mortgage, or other type of credit is the overall balance you carry on your credit cards. Carrying a balance from month to month isn’t necessarily a score killer, but high balances that reduce your available credit can reduce your credit score and make it tougher to qualify for new cards or credit accounts.
Fox Business shares that keeping balances as low as possible is the best course of action, but keeping overall balances to less than 20% of the total available credit is advisable.
If you currently have high balances on your credit cards, paying them down or paying off as much as possible each month can have a dramatic impact on your score. Note that paying off your balances in full each month is a great way to increase your credit score, but your credit report may show high utilization if you spend up to your limit each month and pay the balance off in full. You may wish to consider making multiple payments each month to make sure your credit report doesn’t reflect a high utilization rate.
Keep Your Oldest Accounts Active
As your accounts age, their value to your credit score increases. Having a credit card for twenty years with a history of on-time payments means you’ve spent at least two decades building good credit. Even if you don’t use one of your older credit cards, think twice before closing it because that old account might be helping to keep your credit score high.
An article from U.S. News & World Report reveals that closing an old credit card account reduces the overall amount of credit you have available. This action can increase your utilization rate and hurt your credit score.
Closing an old account won’t immediately reduce the average age of your credit history, but when the bank or lender stops reporting the card to the credit bureaus after a few years, your credit score could suffer. Even if your old account has a high interest rate, low credit limit, and no real benefits, it’s probably not hurting your score, and it’s important to think carefully before closing it.
Using Credit Cards Wisely Improves Your Credit
Credit scores can seem like a nebulous and confusing number since the wisdom regarding what’s “good” and what’s “bad” isn’t written in stone. However, the one thing most experts can agree upon is that responsible use of credit cards is one of the best ways to keep your credit score high and increase it when you’re trying to repair your credit.