A FICO or credit score can range from between 300 to 850 points, with 780 and above being excellent, and 600 or lower dismal. While it may seem there is plenty of space with which to keep a score afloat, most credit card users find that it’s the tiny mistakes that sink a FICO score.
Never pay late
The biggest way to ding your credit score is by missing a payment. A payment becomes delinquent if it’s between 30 to 60 days late. According to the Motley Fool, a payment that is 90 days late can damage your score as much as filing for bankruptcy. Your payment history is the most important component of your credit score. Any late payments on current loans like a mortgage count against your score. Even a long-past delinquent bill that has been transferred to collections can harm an otherwise adequate score and cost you 100 points on your FICO score.
Delinquent bills sent to collections stay on your credit history report for seven years, regardless of whether or not it was paid off. Your history of late payments is the first thing a lender wants to know and makes up one-third of a credit score, according to this Lexington Law Firm blog post. When dealing with delinquent payments, focus on paying the minimum amount to prevent bruising your credit history. However, always paying your bills on time does not guarantee a perfect credit score.
Keep away from your maximum limit
Being aware of your maximum credit limit is important to help you avoid making any inadvertent dings. Your debt-to-credit ratio makes up 30 percent of your score. Knowing this, avoid maxing out your line of credit, which is a surefire way to upset your debt-to-credit ratio. Lexington Law Firm recommends consumers only utilize up to 30 percent the maximum limit of their credit card. That is, if your maximum line of credit is $10,000, keep your monthly bill under $3,000. For best use of the debt-to-credit ratio keep what you owe beneath 10 percent of your maximum limit. Avoid owing more than 50 percent of your limit at all costs.
If a large expenditure cannot be avoided, work around the 50 percent limitation by paying down your bill early. Bill Hardekopf, CEO of LowCards.com, suggested to Forbes that card users stay in control of the amount of debt reported to credit bureaus each month. Typically, what bureaus receive is the same amount seen on a credit card users monthly statement. Contacting the associated credit card company or lender can determine when the final due amount is posted. From there, make it a point each month to make several payments against your amount due to ensure your end balance is low.
It’s also important to pay a final balance while seeking a refund. Requesting a refund for bad service or a misplaced or damaged package is common. Protocol requires contacting the card issuer to change the payment status to pending. However, a common mistake when disputing a claim is to ignore the total balance due while that claim is disputed. Simply because a portion of the bill is wrong, does not mean the bill in its entirety should be ignored. A late payment is a late payment and can harm your credit score. Take Forbes’ advice and pay off your bill as normal. Remember, you’re still paying for your other purchases included in the bill.
Maintain your credit history
Be careful when shopping for new cards, as each time a card issuer runs a check on your credit card history can diminish your score. The amount removed is small, and only affects your credit for 12 months, but every point counts when it comes to having good credit.
Never cancel old cards, as it will cause you to inadvertently lose points on your score. Fifteen percent of your score pertains to your history. If you remove that history, you hurt your score. Hardekopf suggested in a Forbes report using an older card once a month on a small purchase to keep it active and positively affecting your score. Closing accounts also changes your debt-to-maximum credit ratio, another reason to avoid making changes of that nature. It’s important to remember that drastic changes to your credit history can negatively affect your score.