How to Maintain a Great Credit Score

By Ashley Eneriz, Contributor, on May 22, 2018

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Believe it or not, your credit score has a drastic impact on your financial life. It’s the three-digit number that determines if you’ll be able to finance the car or home of your dreams, and it’s also the figure that can lock you into a lifetime of monthly payments if you’re only offered high interest rates on loans. If you’re a freelancer, maintaining a good score is more important than ever — whether you’re trying to land a great rate on a business loan to help offset your startup costs, or you’re purchasing business insurance. And by improving your score, you’ll be able to qualify for more great business perks, like bonus airline miles or an upgraded hotel stay for your next business trip.

Luckily, your score isn’t just a random number that you have no control over. An excellent score can secure your financial future, helping you save thousands of dollars on home, auto, student and personal loans. The good news? It’s easier than you may think to obtain and maintain a desirable score. Here’s everything you need to know.

What Factors Go Into Your Credit Score?

Your score is based on five main factors: Your payment history, credit utilization rate, credit age, credit variation and new credit inquiries.

“The most important factor that goes into determining your credit score is your payment history,” says Josh Zimmelman, owner of Westwood Tax & Consulting in New York. Your payment history accounts for 35 percent of your score. According to Zimmelman, this factor is based on whether or not you pay your bills on time, how late you are on payments and how many of your accounts have been sent to collections, settlements or resulted in bankruptcies. “All of this information answers the big question: Based on your history, can you be trusted to repay money that is lent to you?” he explains.

The next big factor, accounting for 30 percent of your score, is your credit utilization rate. It’s a pretty simple formula: how much debt you owe versus how much credit you have. For example, you might only have one credit card with $500 of debt on it. Sure, that amount of debt is small, but if you only have a $1,000 total credit line, your credit utilization rate is 50 percent — higher than recommended. Credit issuers like to see a credit utilization rate of 35 percent or less.

Your credit age — the average age of all your credit accounts — makes up 15 percent of your score. The higher the average age, the better. Lastly, account variation and new credit inquiries each make up 10 percent of your score. They look at the types of credit you have, and if you’re being wise with your credit inquiries. In other words, don’t apply for new lines of credit every month.

Four Tips and Tricks for Maintaining Excellent Credit

Now that you know what goes into a great credit score, it’s time to put that knowledge into practice. Here are some tips on how you can maintain a high credit score, which will benefit both your personal and professional life.

1. Know Your Score

The first step to obtaining and maintaining a high score is to know what your score is in the first place. You can secure a free credit report through Annual Credit Report, and it’s wise to retrieve your report yearly so you can check for errors. Other free sites, like Credit Sesame and Credit Karma, offer free credit checks that are also useful in checking and improving your score. Both of these sites show users which areas they can improve to boost their score, like lowering a high credit utilization rate. Many credit card companies will also share your score with you on your monthly billing statement.

2. Pay Your Bills on Time

A late payment can put a dent in your credit, so use autopay or set reminders to pay your bills by the due date. If you’re late on a payment, call your creditor right away to settle your account and avoid being reported to credit bureaus. If a late payment is recorded on your credit report, you can still try to undo the damage by sending out a goodwill letter.

3. Pay Off Your Debt

Paying off debt can boost your score quickly if your credit utilization rate is high. To find out your utilization rate, add up all your credit card debt and divide it by your total credit card limit. For example, if you owe $250 on one card, $0 on another and $1,000 on the third, and you have a combined credit line of $3,000 between the three cards, your utilization rate would be 42 percent. Paying off card number one, or $250 of debt, would lower your rate to 33 percent — boosting your score while you pay off your other debt.

4. Don’t Close Your Credit Accounts

Do you have a card you never use, or just want to stay away from credit cards altogether? Whatever you do, don’t close out your account. Instead, try to use it for a small purchase and make regular payments to get rid of the debt quickly. Once you establish a new credit line, it’s best to keep the accounts open. These accounts are the backbone of your average credit age, and show future creditors you have experience in managing credit — illustrating that you can be relied on to borrow and pay back debt. Before you apply for a new credit card, make sure you really need it, or you’ll find yourself in trouble down the line when you try to secure loans or approvals for that new apartment, mortgage or car lease.

Your credit score has a lot of power over your financial future, but that doesn’t mean you have to be intimidated by it. Making regular, on-time payments and avoiding excess credit card debt will keep your score healthy and allow you to finance a home, vehicle or business loan at a better interest rate. With these tips in mind, you’ll be well on your way to maintaining a great score.

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