What you might do not know: Even if you pay balances in full every month, you still could have a higher utilization ratio than you’d expect. That’s because some issuers use the balance on your statement as the one reported to the bureau.
Even if you’re paying balances in full every month, your credit score will still consider your monthly balances.
One strategy: See if the credit card issuer will accept multiple payments throughout the month.
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Eliminate “nuisance balances”
“A good way to improve your score is to eliminate nuisance balances,” says John Ulzheimer, a nationally recognized credit expert formerly of FICO and Equifax. Those are the small balances you have on a number of credit cards.
The reason this strategy can help your score: One of the items your score considers is just how many of your cards have balances, says Ulzheimer. So, charging $50 on one card and $30 on another, instead of using the same card (preferably one with a good interest rate), can hurt your score, he says.
The solution to improving your credit score: Gather up all those credit cards on which you have small balances and pay them off, Ulzheimer says. Then select one or two go-to cards that you can use for everything. “That way, you’re not polluting your credit report with a lot of balances,” he says.
Leave (good) old debt on your report
Some people erroneously believe that old debt on their credit report is bad, says Ulzheimer. The minute they get their home or car paid off, they’re on the phone trying to get it removed from their credit report, he says. Negative items are bad for your score, and most of them will disappear from your report after seven years. However, “arguing to get old accounts off your credit report just because they’re paid is a bad idea,” he says.
Good debt — debt that you’ve handled well and paid as agreed — is good for your credit. The longer your history of good debt is, the better it is for your score.
One of the ways to improve your credit score: Leave old debt and good accounts on as long as possible, says Ulzheimer. This is also a good reason not to close old accounts where you’ve had a solid repayment record.
Trying to get rid of old good debt is “like making straight A’s in high school and trying to expunge the record 20 years later,” Ulzheimer says. “You never want that stuff to come off your history.”
Use your calendar
If you’re shopping for a home, car or student loan, it pays to do your rate shopping within a short time span. Every time you apply for credit, it can cause a small dip in your score that lasts a year. That’s because if someone is making multiple applications for credit, it usually means he or she wants to use more credit.
However, with three kinds of loans — mortgage, auto and more recently, student loans — scoring formulas allow for the fact that you’ll make multiple applications but take out only one loan.
The FICO score, a score commonly used by lenders, ignores any such inquiries made in the 30 days prior to scoring. If it finds some that are older than 30 days, it will count those made within a typical shopping period as just one inquiry. The length of that shopping period depends on the credit score used. If lenders are using the newest forms of scoring software, then you have 45 days, says Ulzheimer. With older forms, you need to keep it to 14 days.
Older forms of the software won’t count multiple student loan inquiries as one, no matter how close together you make applications, he says.
“The takeaway is don’t dillydally,” Ulzheimer says.
Watch how many times you apply for credit
Every time you apply for credit it works against you – since it stays on your report prospective lenders may think that you are “shopping” for money. Try to avoid various promos luring you get yet another department store garden-variety credit card, only consider applying for credit you really need.
Always pay bills on time
If you’re planning a big purchase (like a home or a car), you might be scrambling to assemble one big chunk of cash.
While you’re juggling bills, you don’t want to start sending bills late. Even if you’re sitting on a pile of savings, a drop in your score could scuttle that dream deal.
One of the biggest ingredients in a good credit score is simply month after month of plain-vanilla, on-time payments.
“Credit scores are determined by what’s in your credit report,” says Linda Sherry, director of national priorities for Consumer Action. If you’re bad about paying your bills — or paying them on time — it damages your credit and hurts your score, she says.
That can even extend to items that aren’t normally associated with credit reporting, such as library books, she says. That’s because even if the original “creditor,” such as the library, doesn’t report to the bureaus, they may eventually call in a collections agency for an unpaid bill. That agency could very well list the item on your credit report.