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What gets the credit for your credit score?

Date posted:  1/4/17 02:00:00 PM Understand what influences your credit score to ensure your score is as high as possible.

You may have heard that your credit score is a pretty important number when it comes to making big financial decisions, but do you know what influences your score? Here's a look at the factors that can increase or decrease your critical three-digit number:

Credit Utilization
Credit Karma noted that your credit utilization rate is the ratio of available credit compared to how much is actually used. When this is high, your credit score drops. However, when it's low, it can have a positive impact on your score. Keep balances low across all forms of debt, including:

  • Credit cards
  • Student loans
  • Auto loans
  • Hospital bills

Don't close old credit cards
After paying off a balance, you may be tempted to close old accounts. However, The Balance advises against that because another vital component of your score is your credit history. When you close a card, you are eliminating a portion of your credit history, and a longer history is better for your financial report card.

If you want to keep yourself from using these cards again and building up a higher balance, consider cutting or hiding them and using credit only for emergency situations.

On-time payments
If you are late on a payment, it reflects poorly on your financial integrity. This is an especially influential component to your three-digit score. By paying bills on time, you demonstrate that you are reliable. To ensure you develop a habit of doing this, set reminders in your phone or sign up for automatic payments to withdraw money from your checking account whenever a bill is due. While this may be helpful, it's also important to ensure there is enough money in your account to cover these costs when they are scheduled to be withdrawn.

Keep a detailed record of all incoming and outgoing money, and ensure you update it regularly. This will help you keep better track of your bills and when payments are due.

Total lines of credit
Opening several lines of credit can be helpful. However, it's important not to open a line of credit when another line has been maxed out. Always keep balances as low as possible to ensure you achieve the highest possible score.

Hard inquiries
When you apply for a new loan or credit card, you'll go through a hard inquiry, which can ding your credit score.

Ensure you don't apply for loans or credit cards frequently to keep the number of hard inquiries low. Do so only when necessary to ensure your score is as high as possible.

Types of credit
Credit Sesame noted diversifying credit can boost your credit score. Using a variety of credit products responsibly and keeping low balances or no balances at all will demonstrate that you are capable of responsibly using credit.

A credit score influences nearly every aspect of your financial future. By understanding what influences it, you can better grasp how to ensure your score is as high as possible. Once you know the factors, create a plan of action to boost your score.