Your credit score is your lifeline to your purchases — a car, a house, an In-and-Out burger, or a tank top. So, you need to ensure your credit score is high enough that you can afford what you want and need.
So, how can you keep your credit score high? Is the secret constantly checking your credit report? Or is it making automatic payments before your payments become due? And, more importantly, can you still keep a high credit score even if you filed an emergency bankruptcy petition?
Let’s find out.
How Is Your Credit Score Calculated?
Credit scores, often known as FICO scores, are three-digit numbers used by lenders to understand the risk of doing business with you. They’re calculated using the following components:
- Payment History – It includes when you paid your credit account, whether you made your payments on time, and any previous delinquencies, collections, or bankruptcies. The fewer payment issues you have in your payment history, the higher your credit score will be. Take note that a missed due date may affect your credit score. This includes even missing a single payment for whatever reason. In the event that you feel like you’re going to miss your payment, you may call the bank to give them a heads-up. They may consider extending the grace period to give you more time to meet your obligations.
- Amount Owed – It is the amount you currently owe to the amount of credit you have available. Higher debt will lead to a lower credit score. If you have maxed out your credit card or have several large balances on multiple ones, this can affect your standing. It’s better to maintain smaller balances that you pay on time to pull your score up.
- Credit History Length – It is the length of your credit usage. The longer your credit lines have been open and in good standing, the higher your credit score.
- New Credit Lines – It shows how many credit lines you’ve recently applied for. If you constantly apply for new credit lines, your credit score will get a bit dinged.
- Credit Mix – It shows whether or not you can successfully manage different types of credit. For instance, revolving credit, such as retail store cards, credit cards, lines of credit, and gas station cars, and installment credit, such as student loans, auto loans, and mortgages, are factored in.
4 Ways You Can Keep Your Credit Score High
Keeping your credit score high can seem as challenging as differentiating between fake and real paystubs, but don’t worry. It’s actually not that difficult.
Here are some ways you can keep your credit score high:
Pay Your Bills on Time
Paying your bills on time is the best thing you can do for your credit score because your payment history makes up about 35% of your credit score calculation.
Your payment history includes your utility bill, parking ticket, library book, or credit card payments. These appear on your credit report, which credit bureaus use to create your credit reports.
Your loans are also vital in maintaining a high credit score. So, you should take care to pay them on or before the due dates.
So, always make sure to pay your bills on time because they have the biggest effect on your credit score. You could help yourself by keeping aside money at the beginning of every month and cutting back on dining out.
If you can’t pay your credit card bill for medical reasons or unforeseen circumstances, you could ask your lender for an extension.
Pull Down Your Credit Utilization Rate
Your credit utilization rate is the percentage of your total available or approved credit currently being utilized. Simply put, it’s how much credit you use from your available credit.
Because you use different amounts of credit every month, your credit utilization rate goes up and down every month. However, it should never cross 30% if you want to maintain your high credit score.
For example, let’s say you have three credit lines with balances of $2,000, $5,000, and $10,000, and you’re only using $500, $1,500, and $4000 from each.
In this case, your total revolving credit is $2,000 + $5,000 + $10,000 = $17,000, and the total credit used is $500 + $1,000 + $3000 = $4,500. Thus, your credit utilization rate is $4,500/$17,000 = 26.4%, which is well below the 30% limit.
You may take advantage of your bank’s offer to increase your credit limit if you’re in good standing with them. This way, your credit utilization rate will go up. If you didn’t receive an offer for an increase, you may instead give them a call or send them an email to request one. Most banks are willing to consider this, especially if they see that you pay your dues on time.
Try to Keep Your Oldest Accounts Open
As we stated above, your account history factors into your final credit score, and the older your credit history (in good standing, of course), the better.
So, even if you don’t use your first credit card anymore and it’s catching dust in the back of your wallet, you may want to consider dusting it off and making a few transactions every six months.
For instance, you could keep your card active by subscribing to a recurring subscription such as a Hulu or Netflix subscription. You may also use it to buy holiday gifts for your friends, colleagues, or family.
However, if your oldest credit card leads to high annual fees and you don’t use it regularly, you should consider closing it.
Use Credit for Rent and Utility Payments … Or Everything
To get the most benefit out of your credit card, you need to use it regularly; otherwise, your lender might close your account if it’s inactive, negatively affecting your credit score.
So, use your credit card for paying rent for grocery shopping. You can even pay an independent contractor using your credit card. Just make sure you don’t go above the 30% CUR if you’re doing that.
Plus, by using your credit card for your basic groceries, you can earn cash back at U.S. supermarkets, gas stations, streaming subscriptions, transit, and more. For instance, by getting the Blue Cash Preferred® Card from American Express, you can earn up to 6% cash back when you spend $6,000 per year at supermarkets and 3% on streaming subscriptions, gas stations, and transit.
Similarly, if you get the Amazon Prime Visa Signature Card, you can earn 5% cash back at Whole Foods Market and Amazon.com and 2% at gas stations, drugstores, and restaurants. You also get a $100 Amazon gift card when you get approved.
So, there are a million benefits to using your credit card to pay for everything you need to live.
The Bottom Line
Your credit score is important to your survival — almost literally. So, try to ensure you’re focusing on building good credit using habits and not abusing your credit lines, which means not pushing your CUR above 30% and keeping old credit lines open.
So, keep your credit score healthy (and even excellent) by adopting the above advice. If you’re not convinced, give the first tip a try. You won’t need to try very hard to succeed.