The 3 things that could help your credit score the most

All exciting journeys begin with a single step, and your credit standing is no different. Many factors impact your credit score along the way, and that’s definitely a good thing, because you can take the reins on them all. The truth is that as long as you follow three simple rules, you’ll be well on your way to great credit. We’ll show you how.

1. Pay your bills on time

Your payment history is the single most important factor affecting your credit score. FICO® says it’s worth about 35% of your credit score, and Vantagescore® says it’s worth 40%. (Typically lenders rely on FICO scores, but several thousand rely on Vantagescores.) 

The first thing to laser focus on when you’re building your credit is making your payments on time every time.

A good way to do this is to sign up for autopay on all your bills. If you’re worried about not having enough in your bank account, no sweat. Ask your creditors if they can adjust your due date to right after you get paid. And remember, no matter what your due date is, you can always pay early when your bank account is full.

2. Keep credit card balances low

The total amount you owe is the second most influential factor (about 30%) in your credit score. The comparison between your balances and your credit limits may be a more influential factor than the actual dollar amount you owe. That’s because having maxed-out credit card accounts is a sign of potential future financial distress. 

If you pay off your credit card balances every month, however, or your balances are very low, that shows lenders that you aren’t struggling to repay your debts.

We’re talking about your credit utilization ratio, not your balances. Simply put, this ratio measures how much of your available credit you’re using—and it has a big impact on your FICO score. 

You can calculate your credit utilization ratio by adding up your credit card balances and dividing that by your total credit card limit. Here’s an example.

If someone else has a combined credit limit of $10,000, this same $1,365 balance would only equate to a 13.65% utilization ratio. 

People with top credit scores tend to keep their credit utilization ratio below 10%. 

3. Open and close accounts sparingly

You can improve your credit profile by paying attention to which accounts you have and tending to them like you would a flourishing garden. Together, these factors make up about 35% of your FICO score:

• Account age (older is better): A long credit history has a favorable impact on your credit standing. If you keep your credit card accounts open for a long time, it shows that you can manage them over time. Avoid closing accounts if there is no disadvantage to leaving them open. (One disadvantage might be an annual fee that you don’t want to keep paying.)

Account age makes up about 15% of your credit score, so keep accounts open when it makes sense to do so. Especially if it’s not costing you anything and you aren’t at risk of being tempted to overspend just because you have available credit. 

Every new account lowers your average account age. Accounts that you pay off, such as a personal loan or a mortgage, will continue to factor into your credit score for ten more years. 

• New credit accounts (fewer is better): A hard inquiry (or hard credit check) usually happens when you apply for new credit. Each one could knock a few points off your score. Inquiries account for about 10% of your FICO score.

Applying for multiple accounts in a short period of time could make you seem risky. Some creditors will automatically deny your application if you have applied for credit too many times recently. 

• Credit mix (tends to happen naturally): You could build a stronger credit score by demonstrating experience with different kinds of accounts. A good credit mix includes a variety of types of accounts, such as student loans, car loans, mortgages, credit cards, and so on. 

Credit mix tends to happen naturally over time as life happens. This factor makes up about 10% of your total FICO score. 

Credit scores aren’t complicated—especially once you understand how they work. In fact, if you pay your bills on time and keep credit card balances low, you’ve got most of a great credit score covered. The other factors are icing on the cake.

What’s next?

• Start a regular habit of budgeting. It’s a great way to make sure you’ll have enough money for the expenses that are most important to you.

• If your credit utilization is high, one way to lower it is to pay off your credit card debt with a new debt consolidation loan. 

Save up an emergency fund so that you’re prepared for surprises and don’t need to go deeper into credit card debt when an unexpected expense comes up.