Pay all of your bills on time. The bills that most directly affect your credit score are payments to lines of credit and loans: car loans, student loans, personal loans, credit cards, retailer credit cards, etc. However, as mentioned above, you also need to pay all of your other bills on time, because falling behind on them could result in your information being reported to a debt collection company, and they will report back to the credit bureaus.
Debt capacity/Credit utilization
The rule of thumb with credit utilization is to stay below 30% on each individual credit card and on your combined credit limit. So, if you have a card with a $1,000 limit, you shouldn’t have more than a $300 balance on that card at the end of each billing cycle. If you had three cards—one with a $500 limit, another with $750, and the last with $1,000—you wouldn’t want to carry a balance of more than $675 dollars in total. So while you’re working to not overutilize your credit capacity, also aim to carry as little debt as possible.
Length of credit history
This may sound counterintuitive at first, but it’s actually in your credit score’s best interest to keep old credit cards open—even if you no longer use the card (maybe you don’t use its perks or you found a card with a lower interest rate). Here’s why.
When you close a credit card, you lose that credit history, and since 15% of your credit score depends on your average credit history length, this can ding your score. It also reduces your available credit, which in turn lowers that 30% credit utilization threshold you’re trying not to exceed.
New and types of credit
While using a mix of credit—credit cards, loans, etc.—is generally part of a higher credit score, you want to limit the number of applications for new credit, especially in a short span of time. When you apply for a new credit card or loan, the lender will make a “hard inquiry” on your credit report, which will temporarily lower your score. And remember, opening a new line of credit will lower your average credit history length.
So, while in theory the ideal mix might be one car loan, one mortgage, and a few types of credit cards, it isn’t worth taking on more debt than you can repay or having too many new lines of credit to earn a perfect 10 on this component of your score.
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