If you want to see continued improvements in your credit history, you’ll need to make sure you use credit responsibly. That means paying attention to all the factors that go into your credit scores. Here are some tips to help you stay on track with five main factors: your payment history, the amount you owe, the length of your credit history, your new credit accounts, and your credit mix.
Payment history
Although different credit scoring models consider factors differently, payment history is generally a very influential factor. Late or missed payments can really hurt your credit scores, so always try to pay your bills on time. If you can’t pay off all of your credit balances in full each month, at least make the minimum payment to avoid a late fee.
Amount owed
This factor refers to your credit usage, or how much of your available credit you’re using at any given time, and your total balances due. Credit utilization is calculated by dividing your total credit card balance by your total credit card limit.
Most experts recommend keeping your credit usage below 30 percent. Doing so suggests to lenders that you are not spending beyond your means and that you can use your credit responsibly.
Length of your credit history
If you’re just starting to establish your credit, there’s not much you can do to influence the length of your credit history. In the future, however, you’ll want to seriously consider keeping your oldest line of credit open to prevent the length of your credit history from shrinking.
new credit accounts
“Too many [hard] credit checks on your credit can lower or hurt your score,” says Lavelle.
Lenders typically don’t like to see you open several new accounts in a short period of time because it suggests a higher risk of defaulting on the loan. While you need new credit to boost your scores, focus on opening just one account at a time instead of many at the same time.
Credit Combination
Basically, credit blending looks at the different types of credit accounts you have open. This can include credit cards, installment loans, mortgages, and other types of credit.
As someone just establishing credit, you shouldn’t take out a loan just to meet the credit mix portion of your scores. Over time, he will slowly build up this small part of his scores as he goes through major life events, like buying a car or a house.
In summary
Establishing credit without first having credit is frustrating. It seems like a contradictory situation difficult to escape.
Instead of getting frustrated and giving up, use the tips above to start building your credit. As soon as you open your first line of credit, be sure to use your credit responsibly to help improve your credit over time.