Your credit score may seem like a big, mysterious, randomly assigned number, but once you know what it is and how it’s calculated it’s not quite so scary.
And – with a little research, a little patience and some good habits – you can even influence your credit score in a positive way.
After all, your credit score can affect everything from the interest rate on your loans to landing an apartment.
Watch as Jen tracks down Credit Squirrel to find out how to build and maintain a good credit score.
To recap, here are Credit Squirrel’s seven ways to build and maintain good credit scores.
1. Pay your bills on time
Paying your bills on time is kind of a big deal, so don’t hide them and don’t pretend they don’t exist. Email alerts, reminder apps and even automatic bill pay can help you stay on top of your payments.
2. Start small
Part of your credit score is based on the length of your credit history. So if you’re just starting out, open one credit card and use it for small, regular, manageable payments. Something you know you can pay off every month, like a cell phone bill or gas.
3. Keep utilization low
This means using only a small portion of your available credit. If you have $1,000 of credit available and you’re using almost all of it each month, it makes you look as though you rely heavily on that credit line. Keeping your utilization down to about 10% keeps your credit score in tip top shape.
Here’s how to calculate your credit utilization:
- Find the amount charged to your credit cards each month and add them together
- Find the credit limit of each card and add them together
- Then divide your total monthly credit card spending by your total credit limit
- In the example below, $580 total monthly spending divided by a $1,500 total credit limit represents a 39% utilization rate.
4. Limit new credit
Don’t open a large amount of credit cards in a short time. Lots of inquiries on your credit report within a short time frame makes your score drop. Space out new account openings and closing to minimize the effect on your credit score.
5. Mix it up
To give your score an extra boost, have a variety of credit. A mix of credit cards, retail cards, utility bills and instalment loans keeps your score balanced.
6. Don’t carry a balance
Pay off your statement balance every month and try your best not to carry a balance. A credit card shouldn’t be treated like extra income. If you can’t afford to pay something off in a month, you probably shouldn’t be putting it on a credit card in the first place. Making only the minimum payments each month can get you in trouble very quickly with all the interest you have to pay.
7. Monitor your credit
Keep an eye on your credit report and score. You are entitled to one free credit report per year by mail from Equifax and TransUnion. When you receive your credit report, you’ll notice that it does not list your three-digit credit score. Despite this, it’s still a helpful reference because it serves as the basis of your credit score. There are free sites that you can use to get a good estimate of your credit score, as well as paid services to access the exact score.