Some consumers are more confident than they should be about their ability to manage their credit score. While 89% of consumers say they use credit responsibly, more than 25% of FICO scores are below 650. A credit score of 650 is the usual cut off point for good loan terms. While 65% of consumers say that they use credit responsibly, only 41% really understand what goes into a credit score. Meanwhile, 43% say they are only concerned about credit worthiness when they are trying to use it. The time to manage your credit is not when you are trying to put it to use.
What can you do to improve your credit score? Your FICO score is based on your payment history, how much you owe, and your credit history. FICO scores typically measure your credit utilization rate; the total dollars you have spent as a percentage of your total credit limit. Paying your bills on time, on a regular basis is the best way, in the long run, to increase your score. Opening new credit accounts can lower your score, but keeping those accounts over time, using them, paying on time, and keeping your balances low will raise your score.
Consumers with great credit scores have learned the secrets to using and maintaining them. They have all borrowed money and paid it back, on time. Here are a few of their tricks:
Never pay cash. You want every purchase to count, so charge everything on a credit card. Just be careful to make all of your credit card payments on time and keep your balance well below your credit limit.
Never use a debit card. They provide absolutely nothing for your credit score. Further more, if someone steals your credit card, you are protected against fraudulent purchases, if your debit card falls into the wrong hands, you are out of luck.
Pay off your balances. You will obtain your best credit score if you make sure that you do not carry high credit card balances. Make sure you use your accounts, but also make sure you pay off the entire balance every month, and on time.
Put yourself on a bill payment schedule. In order for the credit bureaus to reward your good spending habits, you have to pay your bills on time. The easiest way to stay on top of your bills is to pick one day per month to pay your bills.
Request higher credit card limits. Banks and credit card companies are very comfortable consistently raising the spending limits of consumers with good credit scores. A higher spending limit gives you more freedom to use your credit while still staying well under your credit limit.
Never rent. Your home is probably the largest purchase you will ever make in your life and it is the one purchase that can make the biggest impact on your credit score. When you purchase a home, you are showing the credit bureaus that you can consistently budget yourself to pay a large portion of your income towards an account on a monthly basis. There are a number of reasons people with great credit scores refuse to rent, and the impact of paying a mortgage on their scores is one of them.
Consumers with great credit scores haven’t achieved anything too terribly difficult. They have adopted a controlled plan of borrowing money and paying it back, on time. The reward for this behavior is a high FICO score!
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