Educating yourself on how credit works and on how to manage credit can help you achieve a high FICO, Fair Isaac Corporation, credit score. Credit scores are between 300 and 850; and the higher your score, the easier it is to get approved for mortgages, auto loans and various other types of installment loans.
Payment History
Providing creditors with monies owed on or before the due date is a key component in maintaining a good credit history. Payment history is the biggest factor affecting your personal FICO and makes up 35 percent of your score. Missing a payment can end with late fees; and the more payments you miss, the lower your score. Careful budgeting and organizing your bills can help you meet creditor deadlines and avoid credit blemishes.
Credit Card Balances
Paying your minimum payment each month on credit cards isn't an open invitation to buy items you can't afford or carry a high balance. Maxed-out credit card accounts and maintaining balances near your credit limit are extremely damaging to your credit score. Like payment records, the balances owed to creditors make up 30 percent of your score. And quickly boosting a low score might call for paying down your balances. MSN Money advises consumers to keep credit card balances below 30 percent of their credit limit.
Shop Around
Shopping around and finding the credit card and loan with the lowest interest rate is key to saving money on interest charges. Rather than randomly applying for a credit card or loan, read the fine print and look for information pertaining to the interest rate. High-interest rate credit cards and loans equal spending more money on paying down the new interest charges each month, and less money reducing your outstanding principal.
Minimum Payments
Minimum payments are okay if you cannot afford to make higher payments each month. But if your budget allows, always send more than the requested minimum when making credit card payments. Credit card balances can quickly accumulate out of control, and limiting debt requires paying off balances in full each month, and charging only items that you can afford to pay off.
Credit Inquiries
Consumers need credit to build credit, and in an attempt to secure a new credit account, some consumers mistakenly apply for several credit accounts back-to-back. This desperate attempt to acquire credit can harm FICO credit scores because personal ratings decrease with every credit check or inquiry by a bank or company. Keep credit inquiries to the minimum, and only apply for credit when necessary.
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