Often, consumers are quite aware that their credit score is very important in helping to determine a number of aspects in their financial lives, but may not be sure how to go about maintaining a healthy one.
Fortunately, it can be easy for borrowers to stay in good standing if they are diligent and committed to doing so. There's no single best method because every person's situation is different, but here are a few ways that will work for everyone in general.
1. Pay the bills on time
When it comes to determining a credit score, this is the most important aspect, as far as banks are concerned. Borrowers who pay their bills on time and in full are seen as the most trustworthy, and the number of on-time payments a borrower has counts for 35 percent of their total credit score. Even one deadline missed, whether it's by a day or a month, counts the same, and will take a huge chunk out of a credit score.
2. Keep balances low
The second-largest portion of a credit rating is based on what's called "credit utilization," and makes up 30 percent of a score. In plain English, this just means how much they've maxed out their credit cards and other revolving lines of credit. Consumers should usually aim to use only about 20 or 30 percent of their available credit to maximize this portion of their score. Taking the time to pay more into accounts that are nearly maxed out will therefore be a good strategy.
3. Don't open new accounts or close old ones
One temptation many borrowers may have when they're trying to get their credit utilization ratio back to a healthy standing is to open a new account to increase their total combined limit. This usually won't help as much as they think. That's because another 15 percent of a credit rating is made up of the average age of all various accounts a consumer has, meaning that a new one may actually lower their rating.
4. Avoid applying for a lot of cards
Another way that consumers might make a misstep in trying to deal with credit is by repeatedly applying for any kind of account if they get rejected. This is because another 10 percent of a credit score is made up of inquiries to new credit, and the more a potential borrower tries to get, the more banks view them as a risk.
5. Keep a mix
Having a number of different kinds of credit is seen as a good idea because it shows a consumer can handle multiple responsibilities. Student loans, mortgages, credit cards, auto loans and the like can all contribute to this final 10 percent of a score.
6. Make sure there are no mistakes
One issue consumers might find is that they have unfair entries on their credit reports. Getting these cleared up with the help of a credit repair company can boost their ratings quickly and easily.