Lexington-Fayette, Kentucky 2021-01-19 19:10:53 –
Your current credit score is the starting point for your journey to build credit or recover it after a setback.
The next step is to understand how the way you handle your finances affects your credit score. Two things are far more important than anything else. Pay on time and use the credit limit.
Paying on time is the most important
Paying on time is the only biggest factor in your credit score — and for credit scoring purposes, “on time” is within 30 days of the due date. If it is customary to pay late, it is virtually impossible to add points to your score. To make matters worse, an account that is at least 30 days late can be credit-recorded for up to 7 years.
How to figure out your payment
Assuming you have enough bank accounts to avoid overdrafts, set up automatic payments to cover at least the minimum amount that should be paid. You can set alerts to let you know that payment is approaching.
If you have an expired account, it’s important to keep up with your credit score, as payments delayed by 30 to 60 or 90 days or more will worsen your credit score.
As the previous delinquency disappears in the past, the damage to your credit will be less. In addition, by accumulating positive information, the impact can be diminished. That is, to ensure that all invoices are paid on time, and perhaps to open a new credit line. If you have close friends or relatives who have good credit and are willing to add you as an authorized user to your credit card account, your score can benefit from their payment records. (They don’t have to give you a card or charge you. You can help you just by being in your account.)
Credit card balance has a big impact
Your credit card balance affects your score in much the same way as a scheduled payment. In general, the less credit card you use, the higher your score. In the credit story, this is the credit usage rate, expressed as a percentage. Most experts recommend using less than 30% of your credit limit, but less is better.
Jeff Richardson, a spokesman for Vantage Score, one of the two major credit scoring companies, suggests that keeping balances below 30% suggests that debt isn’t too high and it’s difficult to repay. Stated.
The good news: If you can reduce your credit card balance, there will be no damage to your score.
How to keep the balance low
Credit card issuers report their balance about once a month. The amount reported will most often match the amount on your monthly statement. You can pay your balance before the statement is issued, or you can pay as many times as you like online. Check your balance on a regular basis. Otherwise, you may be able to set up account alerts to notify you when your balance reaches the selected limit.
Adding as an authorized user to a card with a high credit limit and low credit usage can also help improve your credit profile.
However, you must use part of your credit limit. Not using a credit card at all does not prove that you know how to repay it responsibly. There is also a risk that the issuer will close the account due to underuse.
Other things you need to know
If you pay on time on a regular basis and spend only a small portion of your credit line, you can expect to have a decent score. It’s really easy.
The score takes into account other factors, but in total it makes up about one-third of the score. They include:
- Diversity of credit. Scores are rewarded by combining credit cards and loans, setting conditions and equalizing payments (although it is possible to get a good score with just one type).
- How often to apply for credit. Having some credit applications nearby can cause temporary damage.
- The length of the credit history. The longer it is, the better. Unless you have a compelling reason, consider leaving your credit card open and using it lightly.
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Bev O’Shea is writing for Nerd Wallet. Email: email@example.com. Twitter: @BeverlyOShea.