Seo article reprinted with permission from NerdWallet.
Your current credit score is the starting point for your journey to build or renew credit after a stop.
The next step is to understand how the way you handle your finances affects your credit score. Two things are more important than anything else: pay on time and how many credit limits you use.
Paying on time is most important
Paying on time is the single biggest factor in your credit score – and for credit scoring purposes, “on time” is within 30 days of the due date. It is almost impossible to add points to your score if late payment is a habit. Worse, accounts can last at least 30 days as a result of staying on your credit record for up to seven years.
How to stay on top of payments
Set up automated payments to cover at least the minimum amounts payable, assuming you have enough in your bank account reliably to avoid overdrafts. You can set up alerts to let you know that payment is coming up.
If you have an account that is late, it is important to try to capture it, as damage to your credit score will be exacerbated by payment going from 30 to 60 to 90 or more days late.
You may also like: Here are the top 10 places to work in 2021, according to employees
As an earlier late payment goes down into the past, the damage to your credit diminishes. You can also mitigate its impact by stacking advanced information: making sure all bills are paid on time, and possibly opening a new line of credit. If you have a close friend or relative who has excellent credit and is willing to add you as an authorized user to their credit card account, your score can benefit from their payment schedule. (They don’t have to give you the card or let you pay expenses; just being on the bill can help.)
Credit card balance has a big impact
The amounts on your credit cards affect your score almost as well as on-time payments. In general, the less credit card limit you use, the better your score. In colloquial credit, this is a credit practice, and is expressed as a percentage. Most experts advise not to use more than 30% of your credit limit, and less is better.
Jeff Richardson, a spokesman for VantageScore, one of the two major credit-bearing companies, notes that keeping your balance below 30% suggests that your debt is not as high. and will be difficult to pay down.
The good news: As soon as you can clear your credit card balance, it will stop damaging your score.
How to keep balance low
Credit card issuers report your balance approximately once a month. The amount reported will usually match the amount on your monthly statement. You can pay your balance before the statement is issued, or pay online as often as you like. Check your balance regularly, or you may be able to set account alerts to let you know when your balance reaches your chosen limit.
Read also: The IRS says this tax season will be ‘one of the most important.’ Make a note of these key dates
Adding as an authorized user to a card with a high credit limit and low credit usage can also improve your credit profile.
You do want to use some of your credit limit, though. Using your credit card does not show that you know how to repay it wisely. And there is a risk that distributors may close your accounts for lack of use.
Another thing to know
If you pay regularly on time and use only a small portion of your credit limits, you can expect to have a reasonable score. It’s that simple.
Related: 5 credit errors that can come back to haunt you
Scores take into account other factors as well, but when taken together, they make up about a third of your score. These include:
- Credit diversity. Scores reward a combination of credit cards and fixed-term loans and equivalent payments (although it is possible to get a good score with just one type).
- How often do you apply for credit. Several close credit claims can cause temporary damage.
- All credit history. Longer is better. Consider keeping credit cards open and using them lightly unless you have a compelling reason to close them.
More From NerdWallet
Bev O’Shea writes for NerdWallet. Email: [email protected]. Twitter: @BeverlyOShea.