“We are glad you chose us as your lender. As you know, your credit score is _______.” For some people, filling in that blank might be nerve-racking. For others, it might be a source of pride and personal accomplishment. If you are working on your credit score, or simply want to know more about putting together a score that will make friends jealous and bankers swoon, read on.
Keep Your Available Limits Manageable
One of the top factors that affect a credit score is a person’s available credit. This is simple to understand with some numbers.
- A person has one credit card to their name. The available balance is $1,000. At present, the person has charged a total of $200 on the card, leaving them with $800 available. As a percentage, the person has 80% available credit.
- A different person has only one credit card, but their available limit is $300. At present, the person has charged $100 on the card. Their available limit is $200 or 67%.
Even though the second person in our example has a smaller outstanding balance, their available percentage is lower and their credit score will be lower. The closer your available limit is to 100% the higher your score will be.
Pay On Time, Every Time
Without a doubt, the single biggest factor of a person’s credit score is whether or not they pay their obligations on time. Paying all debts, regardless of the size, on time will do more to improve a person’s credit score than other tactics.
Keep Paid Off Credit Lines Open
Review the earlier example about available credit for a moment. Suppose you have three credit cards but you only owe money on two of them. Most people would be tempted to close out the one card in order to reduce temptation of charging too much. However, closing down the account hurts in two ways. First, it reduces your available credit limit. Second, it wipes out the history you had with that account. Both of these items will lower your score.
Strive to Have a Good Mix of Debt
In order to reach the magical number of 700 or more it is necessary to have a mix of debt that you are paying timely. A modest automobile loan, one or two credit cards and a small unsecured loan are usually enough to provide someone with enough diversity to get a high score. Having only one type of debt, regardless of the type of debt or how it is paid, will keep your scores in the 600 to 680 range.
Above all else, it is important to understand that building a strong credit score takes time. It will not happen in a day, a week or even a month. You will need to focus on the tips outlined above for a few months, maybe a year, in order to reach the pinnacle of credit scores.
Original Post - Tips for Higher Credit Scores