Money Talks, So Should You

Q&A: How do I maintain a good credit score?

Kim Jones
by Kim Jones, The Garrett Network

Ever wondered how you can get to the magic number of 850? That’s the highest credit score possible. But to get the best deals you don’t need a perfect 850. A score of between 730-760 will help you snag those.

Your credit score is determined by:

• 35% payment history
• 30% the utilization rate
• 15% length of credit history
• 10% new accounts opened recently
• 10% types of credit used

READ: Three smart strategies to improve your credit scores

Most important - pay your bills on time. Being 30 days late on a payment can ding your credit by 60-110 points. You must consistently pay on time. Set up automatic bill pay or mark your calendar to make certain that you don’t miss payments or make late payments.

30% of your credit score is determined by the extent to which you use your available credit. Use less than 30% of available credit. Don’t max out your credit cards to get the best score. This means that if you have $3,000 as a credit limit on all credit cards combined, you have less than $1000 charged. If you are getting ready to apply for a new mortgage or auto financing, pay down your credit cards to a lower than 30% utilization first before applying.

The longer your credit history the better. Don’t cancel the credit card with the longest history. Creditors like to see that you’ve been able to pay your bills for a long period of time. If you cancel an old credit card to get a new one your credit score may be affected. If the new credit card has better benefits feel free to use it. But keep the old card and use it occasionally so that your length of credit history stays in place.

READ: How do I correct a mistake in my credit history?

Speaking of new credit, don’t open a lot of new charge accounts if you want the best credit score. One or more recently opened accounts can reduce your score. So think long and hard about taking up that big box store on their offer of instant credit or in-store financing.

The last 10% of your score involves the type of credit that you use. From a scoring standpoint (but not necessarily a budgeting one), it can be helpful to have a mortgage, car loan, installment loan and credit cards. If, for example, you only have a credit card on your credit history your score will be reduced when compared to others who successfully use many different types of credit. Just remember that your budget is an important factor here. Don’t apply for a car loan just to improve your credit score if the loan payments are outside of your budget.

And don’t forget to check your credit report periodically at www.annualcreditreport.com. You are entitled to receive one free report each year from each of the three credit reporting agencies. Check to make certain that no information is fraudulently listed on your report.

Important to remember: Your credit score is not the same as your credit report. Your score is a measure of how you use credit. Your report is a listing and a history of your creditors.

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Kim Jones, CFP® is the Principal of Jones Strategic Financial Planning, LLC in Broomfield, Colo. Jones earned the right to use the CFP® marks of distinction. She completed her CFP® curriculum through the College for Financial Planning in Denver.