Make or Break Your Credit Score

Good habits make for a good credit score.

Your credit score is vital to your financial health and wellbeing. It’s easier to maintain a good credit score than it is to improve a bad one. Follow these simple steps to stay on the right track and maintain a credit score you can be proud of.

Pay on Time: It should go without saying, but paying your bills on time is important. Late payments stay on your credit report for upwards of 7 years. Because your payment history comprises about 35 percent of your credit score, you want to keep it in good stead. Even if you can’t pay a bill in full, pay some portion of it by the payment deadline to avoid negative information on your credit report.

Build a Credit History: The longer your (positive) credit history, the higher your credit score. Use credit responsibly and develop a history. If your long-term goal is to buy a home, you may want to open a few accounts for the sole purpose of using them to help you build a positive and long credit history.

Pay Off Your Credit Cards: Some experts insist that carrying a credit card balance won’t damage your credit score, but they are only partially right. One component used to determine your credit score is your debt utilization rate, which is the ratio of debt to available credit. If your debt utilization rate is above 50 percent, it can impact your credit score. The best case scenario is to pay your balance in full every month—this shows responsible use of credit and a history of on-time payments while also keeping your debt utilization rate down.

Go for Variety: Using a variety of different types of credit can improve your credit score. This could mean maintaining a credit card, a mortgage, a car loan, an installment loan, and a store card.

Balance Your Use of Debt: Overburdening your credit lines can have a negative impact on your score (due to the debt utilization rate mentioned above). Experts recommend that you never use more than 50 percent of any given credit line. That means if you have a maximum limit of $10,000 on your credit card, you’ll never let your balance get above $5,000.