Credit scores measure credit risk. Lenders and creditors use the score to calculate the level of risk you pose as a borrower to a creditor. Most people are surprised to learn how their actions as a creditor can affect their score. For example, were you aware that closing out an account that still carries a balance lowers your score? Yes, it does. Continue reading to discover more behaviors that affect your credit score.
Pay your bills on time
The most important thing you can do to increase your credit score is to pay your bills on time. Late payments have the biggest affect on your score. If you discover that you cannot make a payment, it is best to make arrangements with your creditor or lender as soon as possible. In many cases, your creditor or lender arrange to waive a monthly payment.
Many lending institutions have online bill paying systems that allow you to send payments automatically. If your bank has this system, use it to avoid falling behind on your monthly payments.
Avoid max-outs
Having your credit account balances at or close to the limit is detrimental to your score. Maxing out your credit cards makes it appear to lenders as if you are taking on too much debt. A general rule of thumb is to keep balances at or below 30% of the total limit. For example, if you have a card with a $1,000 credit limit, you should keep your balance below $300.
Don't close out that account just yet
A longer, well-managed credit history is much better for your credit score than a short history, even if you paid all the bills in a timely manner. It is best to keep your oldest credit account open as long as you can, especially if the relationship continues to be beneficial.
Never close out a card that still has a balance. This drops your limit to zero while your balance still remains. This makes it look as if you have maxed out your credit card, and it will ultimately decrease your score.
Keep applications for credit to a minimum
Avoid applying for credit cards unless you absolutely need to, even if the store clerk says you can save 10% on your purchase. Every time you apply for any kind of credit, an inquiry is logged on to your report. Too many inquiries in a short time span will lower your credit score. Before you fill out that application, ask yourself if you really need the card.
A low credit score won't follow you around forever. Begin taking the steps to improve your score now and you will enjoy the positive effects once your score begins to improve.
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