Posted on: Dec. 02, 2017 in Credit

Credit scores can feel pretty mysterious if you’re not sure how they are determined and what consumer behaviors can affect them. Understanding how your score is determined is essential to avoiding some of the most common mistakes.


Elements of a Credit Score

Your credit score is based on five basic factors: payment history, amounts owed, length of credit history, new credit, and type of credit used. Not all of these categories are weighed equally, and payment history and amounts owed are the most important, making up a whopping 65% of your score. These are the top two areas to focus on when working to maintain a score or raise it after it’s dipped.

Make Timely Payments

Missing payments is the number one credit score killer. Whether you’re just late or you’re skipping them completely, not making your payments on time sends red flags to lenders that you are a high risk. While sometimes life gets in the way and money gets tight, always do whatever you can to make at least the minimum payment on time. If even that isn’t possible, call the lender to discuss the situation before you miss the due date. They’re usually willing to work with people who proactively reach out.

Avoid Overspending

How much you owe based on how much available credit you have is called your utilization ratio and it’s very important. Try to keep the amount you use below 30% of what’s available to you to keep your score high. Of course, that’s not always possible – you may need to make a large purchase – and that’s exactly what credit is for. However, even having a high balance for a day, if that’s the day the card issuer sends its report to the credit bureau, can negatively impact you. Therefore, it’s best to keep your spending as low as possible and pay off as much of your balance as possible every month.

Credit scores will fluctuate and it’s important to keep an eye on your finances all the time, not just when you’re planning a large purchase. By always aiming to keep debts low and payments timely, you’re likely to keep that score higher!

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