There’s a lot that goes into getting and keeping a great credit score. This is especially true when you’re into “travel hacking” and applying for new credit cards every month. Yet, I think there are just a few principles that you can stick to that will help ensure that your credit score stays in good shape. So here are a few keys for getting and keeping a great credit score.
Don’t “eff up!”
The biggest tip for having a good credit score is not “eff up.” And by eff up, I mean missing a payment and becoming delinquent and/or allowing something to go into collections. Your payment history is the most heavily weighed factor for your credit score and amounts to 35% of your score. Making a late payment and/or allowing something to fall into collections can have huge consequences for your credit score, like dropping your score more than 100 points!
If you’ve just caught yourself in default then make your payment as promptly as possible since you still might be able to lessen the damage. For example, a 30 day late payment will affect your credit less than a 90 day late payment or a charge off. After you’re hit with the late payment, try to do some research on getting that late payment removed. You’d be surprised how much great information you can find on internet forums where others have likely attempted the same thing you’re trying. Read up on what has worked and what hasn’t and then give it a try.
Sometimes a goodwill letter will work to get a late removed but other times you might need professional assistance, which can be a bit costly. It can often be hit or miss with getting late payments removed, but in many cases, it’s worth the hassle.
So do whatever you can to not miss a payment but if you do, start researching on how to get that late payment removed. Read on about how late payments can affect your credit score here.
Get creative to lower your utilization
Credit utilitization is how much you’re currently using of your overall revolving credit limit. It’s a major factor for your credit score, making up 30% of your FICO score. Generally, you want your utilization to be below 30% but I recommend keeping it closer to 10%.
The easiest way to get your utilization down is to pay off or pay down your credit card balances. Unfortunately, that’s not also the quickest or most practical option for many. So sometimes, especially when people are just starting out, I recommend for them to look into getting a debt consolidation loan.
As long as this loan is an installment loan, you’ll be able to potentially get your utilization all the way down to 0% virtually overnight. That’s because installment loans are not factored into your credit utilization (something a lot of people are not aware of). For people who are only being held back by high utilization, this is a great option to catapult your credit score .
Another option to consider is getting added as an authorized user to bring down your utilization. By getting added to an account with low utilization, you can piggyback off this account and increase your credit score. This is a great option for people who are a bit stuck with a lower credit score and don’t have an option of getting a loan or other form of credit to free up their utilization.
Never close your oldest account
The age of your oldest account is the number one factor when determining your credit history, which is the third most important category when determining your credit score. The age of your oldest account will also affect the “average age of your accounts” which is another important factor for credit history. Thus, you want to keep your oldest accounts open in order to help boost your credit history.
You also want to try to cancel as few cards as possible. Look into other options like downgrading or product changing your card to avoid annual fees and allow your accounts to age. Also, seek out retention offers that can often cancel out your annual fee. In the long-run, keeping your accounts open will help your accounts to age and allow your credit score to steadily continue to rise over time.
Try to combine inquiries when possible
An average credit score will suffer a 2 to 5 point drop with each “hard inquiry” that hits your credit, meaning that each credit card application could cause a small dip in your credit score. While these dips are small and also temporary, it’s still a good idea to mitigate the damage done by hard inquiries whenever possible.
Thus, it’s a good idea to get familiar with banks that will allow you to combine hard pulls. This means that you can apply for multiple credit cards at the same time (or within a certain timeframe) and you will only be hit with one hard inquiry instead of numerous hard inquiries. Usually when you apply for cards from banks like Chase and American Express, the credit bureaus will combine multiple hard pulls into one. Utilizing combined inquiries will help mitigate damage done to your score over time.
To find out more about how hard inquiries affect your credit score read here.
Consider applying for small business credit cards
This is really for those people who are signing up for a lot of credit cards. At a certain point, you should look into applying for business cards. There are many benefits for applying for business cards and they can help you mitigate the damage done to your credit report by preserving your average age of accounts and not forcing you to incur an additional annual fee (since you can cancel the card without hurting your score). To find out more about how small business credit cards can work to your advantage read here.
Mix it up
This is the least important tip but you can help boost your score by a few points if you have a mix of both revolving and installment lines of credit. I wouldn’t go out pursuing credit just to diversify your credit mix but it’s often the case that this will happen organically as you pursue a car, home, etc., so it’s something just to be aware of. Learn more about how credit mix affects your credit score here.
It’s a common misconception that you’ll hurt your credit score by applying for credit cards, or a lot of credit cards. However, if you follow these principles over time your credit score will increase and your entire credit report will strengthen.