Taking care of your credit score can feel like tending a garden. Lucky for you, most of the time maintaining a healthy credit score is actually pretty simple. In most cases, you can think of your credit score as one of those succulents that only requires some decent soil, a little time with the sun and a regular encounter with water.
Though not everyone can raise their credit score 170 points in a year, taking care of your credit isn’t an oppressive burden to bear. With that in mind, here are some things you can do to monitor your credit and maintain a good credit score with minimal effort.
1. Check early, check often.
Quick — what’s your credit score? If it takes you longer than a few seconds to reply, it’s been too long since you looked. It’s crucial to know your credit’s baseline so that you can know how it’s calculated (more on that later), and what you can do to keep it healthy.
Whoever said “ignorance is bliss” certainly didn’t know anything about credit. In fact, small business owners who understand their business credit scores are 41% more likely to be approved when they apply for a bank loan, according to a Nav survey. Fortunately for you, plenty of services will let you see your credit scores for free, pretty much instantly. (You can check your personal and business credit scores for free every month at Nav.)
2. Understand the factors that make up your scores.
This one is actually much easier than it sounds, because we’ve already done the work for you. There are five main factors that make up your personal credit score, and they include:
- Payment History (accounts for roughly 35% of your score in most models)
- Debt Utilization (accounts for roughly 30% of your score in most models)
- Credit History/Credit Age (accounts for roughly 15% of your score in most models)
- Credit Inquiries/New Credit Checks (accounts for roughly 10% of your score in most models)
- Types of Credit (accounts for roughly 10% of your score in most models)
When you look up your credit score, you’ll be able to analyze the areas where you’ve done well and others where you need improvement. The first step to managing your credit effectively is knowing where your trouble areas are and where you’re succeeding.
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3. Never, ever miss a payment.
When you think of a credit score, what we’re really talking about is risk management — how much risk you pose to a creditor. The higher your score, the more likely creditors believe you are to pay back what you owe, on time, every month. That’s why payment history is the single most important factor in your credit score, making up more than a third for most credit scoring models.
Missing a payment is one of the worst things that can happen to your credit. Be sure to pay your bills on time (or early, if possible) to get full points in this category. (For more info on what not to do, check out our list of common pitfalls that wreck credit.) Want to make it even easier on yourself? Set up payment alerts on your smartphone calendar or bank app. Most major credit card issuers and banks have multiple alerts you can opt into that take the effort out of managing payments.
4. Keep your utilization relatively low.
After payment history, debt utilization is the second most important factor in your credit reports. When most people think of debt in relation to their credit scores, they probably think in terms of how much they owe. While credit scores can consider the total amount of debt you have, they tend to focus more on how you use it. Let us explain.
Let’s say you have a credit card with a $1,000 credit limit and the balance that appears on your credit report is $500. You are using 50% of your available credit for that card, and that means you have a 50% debt usage ratio. Now let’s say your balance is $200 instead. Your debt usage ratio is 20%. As a general guide, keeping your utilization under 30% will help your scores a lot, and those with top-tier (think 800+) credit scores keep their balances under 10% generally. Important note: This debt usage ratio (also known as debt utilization) is only considered for revolving accounts like credit cards and lines of credit. Installment accounts like mortgages and car loans aren’t considered (otherwise you’d be penalized for being a new car owner, for example).
Want another great way technology has made tracking your utilization easy? Most major credit card issuers allow you to set up utilization alerts for your accounts so you can manage your spending and your credit at the same time.
Which leads to our next point:
5. Consider your credit limits.
This may seem counterintuitive, but having a high credit limit doesn’t hurt your scores. Having high utilization (as we just discussed) hurts your scores. There are two ways to manage this: charge less to your cards or get higher limits on your cards. Raising your credit limits can help keep your utilization low, not to mention provide a safety net in case of emergency.
By requesting your credit card issuer to increase your limit, or by getting a new line of credit, you can improve your credit utilization. Think of it as raising an imaginary ceiling to allow more breathing room. Just remember that in both these cases, a hard inquiry will likely hit your profile, so it’s best not to do this right before you shop for a loan. An inquiry dings your score slightly, but the impact gradually decreases over the course of 12 months and generally has no impact on your score after that.