1. Make Payments on Time
We hear you. This point seems so obvious it’s almost insulting.
But here’s the thing: making payments on time is the most important habit you can practice.
For one thing, 35% of your FICO® credit score is determined by your payment history.
In other words, when you make payments on time, your credit score may go up over time. But every time you miss a payment, it goes on your credit report.
According to Experian (one of the big three credit bureaus), “negative information such as late or missed payments…stay on credit reports for approximately seven years."
Pro Tip: Enable automatic payments to ensure your payments make it on time, every time.
2. Limit Credit Usage to 30%
While payment history is the most impactful metric for your FICO® score, your credit utilization ratio comes in at a close second.
After all, 30% of your FICO® score is determined by your credit utilization ratio.
And what is your credit utilization ratio, exactly? In short, it’s the amount of credit you’re borrowing compared to your total available credit limit.
For example, if you have a total credit limit of $1,000 with a revolving balance of $500, your credit utilization ratio would be 50%.
Many financial experts — and the three credit bureaus — encourage consumers to limit their credit utilization ratio to no more than 30%.
A lower credit utilization ratio could positively impact your credit score.
To lower your credit utilization ratio, be specific with the kinds of purchases you put on your credit card. Build a budget that allows you to stay below 30%, and stick to it as much as possible.
3. Don’t Apply for Multiple Cards All at Once
On the one hand, it might make sense to apply for more than one credit card.
After all, you would increase your available lines of credit and extend your financial freedom. Unfortunately, applying for multiple cards in a short period of time may lower your credit score.
According to Experian, credit card applications likely result in a “hard inquiry” on your credit report, which may stay there for up to two years, although they typically only affect your credit scores for one year.
While there’s nothing wrong with having more than one credit card — indeed, the average American credit card applications likely result in a has four different cards — try to wait a few months between applications to protect your credit score.
4. Check Your Monthly Statements
In our digital economy, errors and fraud are inevitable.
To the extent that you can, make it a habit to check your statements at the end of every month. Review all of the charges to ensure they’re accurate.
If they’re not, be sure to let the card company know as soon as possible.
Note: Be sure to request a copy of your credit report every year. As you keep an eye on your monthly credit statements, it’s good practice to monitor your credit history and ensure everything listed is accurate.
To get a free copy of your credit report, visit AnnualCreditReport.com.
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