Raising Your Credit Score: Play Your Credit Cards Right To Win
Your credit score may be just a number, but it can make or break your ability to get a good mortgage deal, a low-interest car loan, or even a job.
The most common credit scoring system, known as FICO, assigns a rating of 300 to 850 and is based on whether you pay your bills on time, length of your credit history, types and amount of credit, and number of inquiries by creditors.
Here are five ways to use credit cards wisely and protect your credit score.
1. Credit Card Payments: Never Be Late
Always pay your credit card on time. Late payments ding your credit score, and you can end up paying a lot more in late fees and interest.
2. Credit Card Debt: Keep Balances Low
Carrying a small balance and paying it off is good for your credit score because it shows lenders you can handle debt. But experts recommend keeping your balances low--no more than 30 to 50 percent of credit limits. Your credit score takes into account something called "credit utilization," the relationship of your balances to your available credit. Higher rates of credit utilization hurt your score.
3. Preserve Your Credit History
If you must cancel a credit card, close your newest account. The longer your credit history, the better your score, so try to preserve long-established accounts.
4. Get a Secured Credit Card
Paying off balances on secured credit cards is an excellent way to build a good credit history, particularly if you have had credit problems in the past and have trouble getting approved for a major credit card. A secured card is backed by your deposit at a bank, and the credit limit is set according to that amount.
5. Check Your Credit Reports
Your credit score is based on credit reports, so it's a good idea to check the reports once a year to make sure they are accurate. You can get free reports from AnnualCreditReport.com and pay a small fee to learn your FICO score. Correct any mistakes on your credit report by contacting the credit reporting agencies and financial institutions providing the erroneous information.
Published 01/24/11 (Modified 07/28/14)