Here are some tips to help you build the highest credit score possible:
This one can not be stressed enough. 35% of your credit score comes from your bill payment history.
If the creditor (e.g. credit card) gives you a minimum payment, this is the amount they must receive by the due date for your bill to be considered “current” (i.e. on time).
The number bouncing around now is use less than 30% of your available credit (it used to be 50%). So if your credit card allows you a limit of 1000, only use $300. If you consistently use 1000 (and only pay the minimum) your score will go down.
People make mistakes. Machines make even better mistakes 🙂
You might not have paid bills reported. You might have bills that were paid reported as unpaid. You might have bills that aren’t yours reported against your score. There is any number of things that when in error could affect your score.
Do your homework on lenders/credit cards. Some do a soft inquiry (which doesn’t hurt your score) and some do a hard inquiry. If you are shopping for a mortgage, each lender will do a hard inquiry (i.e. it is reported on your credit file) so that other lenders will see you are applying for credit (loan). It also lowers your score, so the more places you talk to that actually “pre-approve” you will hurt your score.
The longer you have someone extend credit to you, the higher your credit score. So if you have a card in the drawer that you don’t use, it isn’t hurting your score. But if it is the oldest card you have, and you close it, your score will go down because your length of credit will go down.
Similarly, closing that unused card lowers your overall amount of credit available, so that too will impact your score.
Now, if you don’t have spending discipline and you max out every card you have, then it might be time to close some of them.
In order to get the benefits to your score for having a bunch of available credit, you need to use it. Now, this doesn’t mean max it out. It means put a purchase on your credit card every now and then. And here is the important part – PAY THE BILL.
Here you demonstrate the ability to have credit extended to you, make use of the credit, and most important, repay the creditor.
Why do creditors want you to use the credit? It is because they can only lend out a certain amount based upon the assets they have. Otherwise, they would be in effect creating money and this would lead to inflation. So if they offer you 1000 in credit, and you don’t use it, you are costing them the ability to make money on that credit facility (think credit card fees, interest, etc). So they would rather you use the credit, even if you don’t pay interest on it, so that it isn’t sitting idle.