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Once you've succeeded in building a strong credit score, the next step is to maintain it. That means paying attention to the most important scoring factors, automating your bills, keeping debt in check and regularly monitoring your credit.
Why would you want to maintain a good credit score? Most important, it could save you money on interest and fees by qualifying you for the most competitively priced loans and credit cards. A good score may also allow you to avoid paying a security deposit on utilities or more easily qualify for rental apartments if prospective landlords check your credit history.
Follow the steps below to help your credit score thrive.
Understand How Your Credit Scores are Calculated
You'll be able to care for your credit score more skillfully if you know how it's determined. The somewhat tricky part is that you have multiple credit scores: There are two primary scoring systems, the FICO® Score☉ and VantageScore®, and each model receives periodic updates. There are also scores specific to certain industries, such as auto lending.
Despite the differences between the scoring models, focusing on the same behaviors and scoring factors will build solid scores across the board. Since the FICO® Score 8 is the most commonly used by lenders, experts often recommend monitoring it as a way to gauge the overall strength of your credit.
Here's what affects your credit scores:
- Your payment record: The most important element in your score is whether you've paid your bills on time. Lenders want to know that you can be trusted to fulfill your debt obligations, and they consider payment history to be the best indicator: In the FICO® scoring model, it accounts for 35% of your score.
- How much credit you're using: Next, your score takes into account how much available revolving credit—primarily with credit cards—you're currently using. So, for instance, if you have a $5,000 credit limit across all of your credit cards, and you have $2,000 in debt on those cards, you're utilizing 40% of your total available credit. This is also called your credit utilization ratio, and it accounts for for 30% of your FICO® Score.
- How long you've had credit: The length of your credit history contributes to 15% of your FICO® Score. Your credit history goes back to the first loan or credit card you had in your name; if you were an authorized user on another person's account, that counts too.
- Types of credit: The mix of credit you're using makes up 10% of a FICO® Score. Lenders like to see that you can manage a range of credit types, including both loans and credit cards.
- New credit: When you apply for a new credit account, the lender requests access to your credit report via one of the credit bureaus. That request, known as a hard inquiry, gets listed on your credit report and stays there for two years. Generally, the more recent inquiries and credit accounts you have, the more concerned a lender may be that you're seeking to access more credit than you can manage. New credit accounts for 10% of your FICO® Score.
Pay All of Your Bills on Time
Since payment history is the most heavily weighted factor in your score, never missing a payment is the most important way to maintain good credit.
Ideally, automate your bills—including credit card bills, loan payments, utility payments and insurance bills—so that you're never late. If you're a cosigner on a loan or a joint account holder, make sure those payments are being made on time too. As a cosigner, a primary borrower's missed payment will also show up on your credit report.
Keep Your Credit Utilization Low
The next most crucial score component is credit utilization, so pay close attention to the amount of debt you carry on credit cards. Experts' rule of thumb is to limit utilization to 30% or less of your credit limit—on each credit card and across all your cards—at all times.
The easiest way to do this? Use credit cards sparingly, and pay off your balances by the end of each month. Even better: Make payments to your cards periodically throughout the month so your utilization never gets too high. Your ultimate goal should be to use no more than 10% of your credit limit, as those with the very highest credit scores do.
Stay up to Date on Your Credit Score and Report
What you don't know can hurt you when it comes to your credit. Regularly monitor your score for changes so you can swoop in quickly if it drops—maybe because you've missed a bill, or maybe because there was suspicious activity that could be a result of fraud such as identity theft.
There are multiple ways to check your score for free, including through various personal finance websites, Experian, and credit card issuers or banks that provide customers with free scores.
Checking your credit report is equally important, since your credit score is calculated using the information in your report. It's also wise to ensure that your personal information is accurate and that all the credit accounts listed belong to you. Know that accessing your own credit report will never hurt your score. You can get a free credit report from each of the consumer credit bureaus (Experian, TransUnion and Equifax) at AnnualCreditReport.com.
How to Build and Establish Credit in the First Place
Credit can be frustrating because it may seem that you need credit to get credit. So, if you want to be able to buy a car or rent an apartment someday, how do you begin building credit? There are several products and strategies targeted specifically to those new to the world of credit:
- Become an authorized user. A relatively painless way to start out with credit is to become an authorized user on a parent or other loved one's credit card. You'll get your own card and can make purchases with it, but you won't be responsible for payments (though it's up to you and the primary account owner to decide how you'll contribute to monthly bills). You'll benefit from the primary borrower's payment history on the card, which means it's important to choose someone who has impeccable financial habits.
- Take out a credit-builder loan. If becoming an authorized user isn't attainable or attractive to you, an option you can pursue independently is applying for a credit-builder loan. These are often available through credit unions, and they allow you to make monthly payments as you would to a lender—and receive the money at the end of the loan term, possibly with accrued interest.
- Get a secured credit card. A secured credit card is a type of card geared specifically to those with low or no credit scores. You'll pay a cash deposit that typically becomes your credit line, and make and pay off purchases like you would with a traditional, unsecured credit card. If you use the card responsibly, you may have the option to transition to an unsecured one with the same issuer after a period of time.
Keeping Credit Strong
The work doesn't end once you've built a good credit score. Maintaining it is a lifelong journey that will have huge benefits, from saving you money and stress during the mortgage application process to giving you access to premium credit card rewards. Keep up the good financial behavior you learned while building your score, and the perks will make the effort worthwhile.