Tips for Building and Maintaining a High Credit Score
Build and maintain a good credit score through consistently good behaviour. One of the ways you can help to achieve a good credit score is simply to pay your bills on time, as a late payment can devastate your scores!
Maintaining low balances on revolving accounts (such as credit cards) can also help. Overall, the best utilisation is less than 30 per cent.
Pay Your Bills on Time
It is vital to have a great credit score because you have a better chance of getting credit cards and loans with low interest rates if you have one. The only way to do this is by always paying the bills on time and keeping debt to the minimum.
Payment history comprises nearly a third of your score, so stay on top of it – automate your regular payments and reminders, and if any get missed, call your creditors immediately to work out a payment plan before it’s ever reported to the credit bureaus.
Pay the most important bills first (such as mortgage or rent payments, car payments, utilities and groceries) and pay any extra cash towards paying down debt as quickly as possible; most experts recommend keeping individual or total credit utilisation below 30 per cent for maximum scores.
Keep Your Balances Low
Paying balances down each month helps lower your utilisation ratio, which in turn helps boost your FICO score. During the course of the year, credit card revolving debt, even if it doesn’t go down, will actually revolve down a bit – in my view, that’s what a ‘revolving’ score means. On the other hand, personal, student and auto loans don’t revolve (up or down) – paying them down each month helps to reduce the balance over time.
Credit utilisation measures the percentage of your available credit limit you’re currently using (on your revolving accounts, or credit cards) and is one of the two biggest components of your credit score. You should ideally be able to pay in full by the statement date but, if this isn’t possible, setting up reminders or alerts through your card issuer or bank can help ensure you make at least the minimum payment on time.
HEY! WANNA KNOW HOW TO KEEP YOUR UTILISATION RATIO LOW? Request a limit increase on one of your current cards, and see if the issuer reports it to the credit bureaus. If so, you should see an ‘improvement’ in your scores.
Don’t Open Too Many Credit Accounts
When you start up a new account without knowing how to manage it, that can devastate your score. Lenders see new accounts as a bad risk – someone who doesn’t have a history of long-term responsible use with credit cards and installment accounts.
Credit bureaus look at your total accounts and total credit utilisation (how much credit you’re currently using compared to your total available). One rule of thumb is that too many new accounts are a red flag; one new account is okay, but multiple new accounts opened in rapid succession is considered bad.
Keep old cards open, even if you don’t plan to use them: it matters to the scoring bureaus, and you also want to keep your average age of accounts as high as possible. Make sure credit utilisation is under 30 per cent, directing as much of your monthly budget as you can pay towards your debts and occasionally asking your current issuers to raise your limits.
Don’t Miss Any Payments
Your payment history, meaning paying on time, is the single most important factor in your credit score, so do all that you can to make good payments on time.Keeping your credit-utilisation ratio low – don’t max out accounts – is going to benefit your scores steadily for any length of time, and stabilise your average age of accounts – which causing it to go down and hurt your scores seems like too much effort.
Other elements that can help bump your score include having a mix of accounts, such as conventional loans and credit cards (10 per cent of your score), as well as history (15 per cent of your score). Good habits now might be providing a road map for financial success later. Plus, you can call yourself a better qualified candidate for better credit card offers in the future, or eager to get a mortgage or an auto loan at a lower rate – if you build up your score now. It takes time so make this your New Year’s resolution already!
