A change in the calendar often brings New Year’s resolutions, and improving credit scores often results in big payoffs in consumers’ financial lives. After all, credit scores determine the interest rate you get on mortgages and car loans. It can also determine if you get the job or apartment you want and what type of credit card you have in your wallet.
Knowing what impacts your credit score the most is useful information to have. Rod Griffin, senior director of consumer education and advocacy at Experian, says paying your bills on time and managing debt are two of the top factors considered by credit agencies.
“The most important thing you can do to maintain or improve your credit scores is pay your bills on time and keep your credit card balances low,” Griffin told ConsumerAffairs. “Your payment history and your credit utilization ratio are the two most important factors used to determine your credit score. Catching up on missed payments is the single most important thing you can do to improve your credit scores.”
Keep an eye on credit usage
Michael, from Littleton, Colorado, saw his FICO score drop 19 points after accepting a credit card application from Chase Bank. In hindsight, he should have considered a card with a higher leverage limit.
“My credit limit on this particular card was $1200,” Michael wrote in a ConsumerAffairs review. “Several months later, I decided to use the Chase Bankcard for an online purchase of $359.”
That’s when Michael saw his score drop. It probably had something to do with the one-time purchase using 30% of his available credit on that particular card.
“Credit card debt impacts your credit utilization rate, which can have a significant effect on your credit score,” Griffin said. “Having high credit card balances increases your credit utilization rate, which will lower your credit scores. On the other hand, keeping your credit card balances low reduces your credit utilization rate, which is a good thing and will have a positive impact on credit scores.
Pay off the balance every month
Some people who use one credit card for all their monthly purchases make multiple payments each month to keep the balance low. Griffin said it really isn’t necessary if you pay the full balance when the bill comes in.
“The balance on the billing statement is usually the balance shown in your credit history,” Griffin said. “Paying before the end of the billing cycle may reduce the amount shown on the billing statement and recorded in your credit history. This can reduce your overall utilization rate. Generally, paying the balance in full each month will ensure the best outcome for credit scores. »
In 2018, Experian launched a program called Experian Boost. Participating consumers can get credit for timely payments of bills on cellphones, utilities and video streaming services – payments that are not typically reported to credit reporting agencies. But for anyone trying to improve their creditworthiness in 2022, Griffin says consistency is the key factor when it comes to paying bills on time and keeping your balances low.