When you apply for a loan, one guarantee is that your credit report will get pulled. This shows your complete financial history with loans. The higher your score, the better chance of loan approval and the lower the interest rate you will likely receive. The easiest way to keep your credit score high is to never miss a loan payment.
There are five main factors evaluated when calculating a credit score:
- Payment history (35% of your score)
- Amount of debt relative to credit limits (30%)
- Age of credit (15%)
- Recent applications for credit (10%)
- Whether you have more than one type of credit (10%)
A Few Other Tips to Maximize Your Credit Score:
Always Pay Your Account on Time
This is the single most important part of your score and getting into this habit will lead to good financial decisions. Most issuers have a short late payment forgiveness period, but getting into the habit of making late payments will eventually result in a bad mark on your credit report.
Regularly Check Your Credit Score
Make a point to take a look at your report every month, quarter or annually. This is an easy way to make sure everything is correct as well as make sure there aren’t any fraudulent items on your report either.
Aim To Keep Utilization Under 30%
If you have a $10,000 credit line, try not to use over $3,000 as it starts to negatively impact your score to a greater extent when you breach this threshold. To achieve an even higher score, aim to keep your utilization under 10%. This also shows financial institutions that you do well with credit and don’t max it out and carry large balances.
Don’t Close Out Old Accounts
Part of your credit score is based on your history and length of your credit file. If you don’t use your oldest credit card, instead of closing it, keep it open. Use it once every year to make sure it stays active and set up an auto pay so you don’t forget about it. Credit scores can shrink by a lot when you cancel that first card and your history goes from 15 years to 5.