Your credit score is derived from a number of things: length of credit history, amount owed, types of credit used, payment history, and new credit. All of these have their own individual impact, however some more than others. The main two actions which reflect the brightest (or darkest) upon your credit score are payment history and amount owed.
Your payment history is all of the monthly payments you make on every credit card you have. They call it “history” because it traces back to the very first payment you ever made. Your ranking relies on the timeliness and amount you paid for each debt. When you make your payments in full and on time, you’re credit score goes up. When you’re late or pay less than the minimum monthly payment, your score drops and that can severely affect your life. If it gets to the point where you’re overwhelmed by a massive overdue balance, you may want to consider a debt consolidation program. However, catching back up with a few double-payments can get you back on track and out of credit card debt.
The second action you want to keep an eye on is the amount of debt you owe. Some people think maxing out their limits and making double payments will improve their score. Not true. Studies show that keeping your usage around 30%-40% is the most beneficial, but it isn’t going to take your credit score from average to great. It basically shows you have active credit and keep your balance at a reasonable amount, and if you make your payments on-time and in-full you have nothing to worry about. When you max out your cards, you are setting yourself up for a possible slip into credit card debt. Even if you have the funds to make payments, an unexpected expense may arise and now you’re stuck with this enormous balance. It is very difficult to get out of credit card debt, so maintaining a reasonable balance helps you in more ways than one.
The other three factors play a small role, but play a role nonetheless. Your length of credit history is a reflection of how long you’ve had credit, stemming back to your first purchase with your first card. Think of it as “experience”; a person who has just started a job won’t get as much respect as someone who has been there for a decade, and that’s how the credit world works as well. Another small piece of the puzzle is new credit, and that’s when you open a new account somewhere. Whether it be a gas card, a department store card, or an online account, this shows you are actively seeking new credit and will improve your score. Types of credit used is the least of the five factors in your credit score, and it deals with the significance of the credit you are paying off.
The sure fire way to stay out of credit card debt and keep creditors off your back is to make your payments on-time and in-full. Debt management just like an evaluation at your job, the credit bureau will sit back, look at your performance and base their judgments on what they expect from you. If you show up on time and consistently produce quality work, you’ll receive a positive credit score. If you’re constantly late and put forth half an effort, your score will be low. Credit card debt weighs heavily on your present and future lifestyle, and you hold the key to your own success.
