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Oct 31, 201901:02 PMOpen Mic

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How to make good credit better

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Do you pride yourself on having a good credit score? In the world of credit, there’s good and then there’s excellent. Even if you are doing most things right when it comes to watching out for your score, there are several lesser known ways to maintain what you have and take your credit to the next level.

Understanding how your credit score is calculated is an important place to start. Six basic credit factors go into calculating this score. While all factors matter, some affect your score more than others. From roughly highest impact to lowest, these factors are:

  1. Derogatory marks
  2. Payment history
  3. Credit card utilization
  4. Age of credit history
  5. Hard inquiries
  6. Total accounts

Below is an explanation of each category and strategies you can employ to improve your score.

Derogatory marks

The category that most affects your credit score is derogatory marks. A user receives derogatory marks by missing a payment, having outstanding payments go to collection, or declaring bankruptcy. One area that can trip up even the savviest is medical bills. It’s not unheard of for people to discover they have outstanding balances on medical bills they didn’t know existed or to not pay at least the minimum payment on a disputed medical bill.

Strategies:

  • Regularly check your credit score so you don’t receive any unwelcome surprises.
  • Never miss a payment by setting up automatic payments, even if it’s just for the minimum.
  • Even if you want to dispute a charge, still make a small payment on the bill to keep it in good standing so your score will not be negatively affected.
  • If necessary, you can send a delete letter to negotiate to have negative information taken out of your credit report (more information can be found here).

Payment history

This category has a large impact on your score but is easy to manage — make your credit card or consumer loan payments on time, at all times. There is very little margin for error in this category; anything less than 99 percent payment history is not considered excellent and anything under 97 percent is considered bad in the world of credit. This means that, especially for someone opening a first credit card, one late payment can greatly impact the score due to the limited number of payments. The more you use your credit cards, make your student loan payments, and complete any other monthly payments, the easier it is to keep your percentage high.

Strategies:

  • To get your percentage up, use more credit cards and pay them off every month.
  • Always set up automatic payments, even if it’s just for the minimum. This avoids human error. One specific strategy that works for some is to set recurring payments to a minimum amount, then set a reminder to change the amount of the payment (or just make an extra payment) once you have confirmed available funds.

Credit card utilization

This is the percentage use of your available credit. If your credit card maximum is $10,000 and your balance is $600, that’s 6 percent. This is only in relation to credit card balances, not loans or mortgages. You should aim to be below 30 percent utilization to be considered excellent in this area.

Many people pay off their monthly balance and consider their work done. Keep in mind that your credit card utilization percentage will change based on when the credit card report is run. If you pay your bill at the end of month but the report is run on the 25th, you could still have a high credit card utilization.

Strategies:

  • Obtain a handful of cards with high credit limits and maintain low balances.
  • Always accept more credit when your credit card company offers or call to request a higher maximum.
  • Make more than one payment per month.
  • Rule of thumb: low balance, high limit.

Age of credit history

This is a category that is hard to influence and is best managed with patience. Your credit age or length is calculated by averaging the age of all accounts in your name. For example, if you have 11 cards — one that you have had for 30 years and 10 new cards you have had for just two years each — the average age would be 4.5 years. The higher the age, the better your score in this area. With an average of seven years or more, your score will be considered excellent. If an account is closed, it will be counted if it still appears on your credit history, which goes back 10 years.

Strategies:

  • Don’t apply for new credit cards or other debt unless you really need it.
  • Don’t close old accounts if they are not charging you yearly fees.

(Continued)

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