A turn of the calendar often brings New Year’s resolutions, and improving credit scores often carries a big payoff in consumers’ financial lives. After all, credit scores determine what interest rate you get on mortgages and car loans. It can also determine whether you get the job or apartment you want and what kind of credit card you carry in your wallet.
Knowing what impacts your credit score the most is useful information to have. Rod Griffin, senior director of consumer education and advocacy for Experian, says paying your bills on time and managing debt are two of the biggest factors credit agencies consider.
“The most important thing you can do to maintain or improve your credit scores is to pay your bills on time and keep your credit card balances low,” Griffin told ConsumerAffairs. “Your payment history and credit utilization rate are the two most important factors used to determine your credit score. Catching up on missed payments is the single most important thing you can do to improve your credit scores.”
Keep an eye on credit utilization
Michael, of Littleton, Colo., saw his FICO score drop 19 points after he accepted a credit card solicitation from Chase Bank. In hindsight, he should have considered a card with a higher debt limit.
“My credit limit on that particular card was $1200,” Michael wrote in a ConsumerAffairs review. “Several months later, I decided to use the Chase Bankcard for an online purchase of $359.”
That’s when Michael saw his score drop. It likely had something to do with the fact that the single purchase utilized 30% of his available credit on that particular card.
“Credit card debt impacts your credit utilization rate, which can have a significant effect on your credit score,” Griffin said. “Carrying high credit card balances raises your credit utilization rate, which will bring down your credit scores. On the flip side, keeping your credit card balances low reduces your credit utilization rate, which is a good thing and will have a positive impact on credit scores.”
Pay off the balance every month
Some people who use a credit card for all their monthly purchases make multiple payments each month in order to keep the balance low. Griffin said that really isn’t necessary if you pay off the entire balance when the bill arrives.
“The balance on the billing statement is typically the balance shown in your credit history,” Griffin said. “Paying prior to the end of the billing cycle may reduce the amount shown on the billing statement and that is reported in your credit history. That may reduce your overall utilization rate. Generally, paying the balance in full each month will ensure the best outcome for credit scores.”
In 2018, Experian launched a program called Experian Boost. Participating consumers can get credit for timely payments for bills on cell phones, utilities, and video streaming services – payments that are not typically reported to credit agencies. But for anyone trying to improve their credit standing in 2022, Griffin says consistency is the key factor when it comes to paying bills on time and keeping your balances low.