In this series for Money Smart Week, Everwise Credit Union is sharing tips on personal finance.
Credit score is a key indicator of financial health. Those three numbers measure how likely someone is to repay borrowed money.
The most used credit score model, FICO, has a range of 300 to 850. An excellent credit score (generally 800 or higher) can open the door to large loans with better interest rates, as well as employment opportunities and more. On the flip side, a poor credit score (typically below the high-500s) can make it harder to borrow, build wealth, or reach major life goals.
Let’s explore the best ways to boost your credit score.
1. Pay all your bills on time.
Up to 35% of a credit score is based on paying bills when, or before, they’re due. Paying bills on time shows an individual can be counted on to repay loans responsibly. To avoid late payments, set up automatic monthly payments.
2. Keep your credit utilization below 30%.
Utilization ratio is another crucial factor contributing to credit score. This refers to the amount of available credit you have and use, and should be kept under 30%, or even 10% if possible. Use just a bit of available credit each month and consider accepting offers for increased credit.
3. Maximize your credit card payments.
Monthly budgets can help trim expenses. Use the extra cash to maximize payments toward debt. Pay down debt with one of the debt-crushing methods. It may take a while, but it can do wonders for a credit score.
4. Keep your credit cards open and active.
Many consumers mistakenly believe the path toward great credit is through swearing off all credit cards. However, building and preserving a healthy credit score requires owning a card or two and keeping them active. Early on, consider signing up for a beginner’s card, which generally features easy eligibility requirements and little available credit. Otherwise, have a minimum of three open cards to use on a regular basis.
Tip: To keep cards active without having an open balance, pay one fixed monthly bill, such as a subscription or monthly membership fee, with each credit card. Set up an automatic monthly payment for a bill that’s linked to a credit card, then set up an automatic monthly payment for the credit card, too. This way, cards remain open and active without any late payments, which would negatively impact a credit score. Several months of using cards responsibly will generally help move credit scores upward.
Celeste Jones is an Everwise Area Manager in Central Indiana.
The information provided is for educational purposes only. The views and opinions expressed are solely those of the author. This information should not be considered to constitute financial, tax, legal, or accounting advice or recommendations. Please consult with an attorney, financial or tax professional for guidance.
