First, let’s understand how your credit score is determined.
Your credit score is broken down into five categories weighted accordingly:
Payment history = 35%
Total amount owed = 30%
Length of credit history = 15%
New credit = 10%
Type of credit in use = 10%
- MAKE YOUR PAYMENTS ON TIME. This is the most important piece of your credit score. Don’t EVER allow a payment to be 30 days past due. Delinquent payments and collections will destroy your score.
- Keep balances low on credit cards. Manage your debt effectively. Maxing out credit cards and/or eliminating your availability will adversely affect your score. Your score will be more favorable with two cards that carry $10,000 limits with a balance of $5,000 vs. one open card with a maxed balance of $5,000.
- Pay off debt vs. moving it between credit cards. Paying off debt will help your score in almost all cases.
- Don’t open new cards at every retail store for the 10% savings….be selective. New debt and too much availability will hurt your credit score. Having $10,000 – $25,000 of availability is great. Having $100,000 of availability is probably too much.
- Keep some older cards where you have a history. The length of your history also matters. A card that you’ve had for 10 years will probably help your score (assuming you are always on time with payments.)
- Check your credit directly from the credit reporting agency. You need to know what is being reported and check the accuracy at least annually. Your report may have mistakes. Report them to the agency and request it be fixed.