There’s no one path you can follow to get an excellent credit score, but there are some key factors to be aware of while you continue to build and maintain it.
Even if you’re holding steady with excellent credit, it’s still a good idea to understand these credit factors — especially if you’re in the market for a new loan or you’re aiming for the highest score.
Credit utilization rate
Your credit utilization rate is calculated by dividing the amount of credit you’re using by the amount of credit available to you. You should try to keep this under 30%, but usually, the lower your utilization rate, the better.
Having high credit limits and keeping your credit card balances low are two ways to help your credit utilization. If you need to lower your credit utilization quickly, you can ask your credit card issuer to raise your credit limit, but know that it might result in a hard inquiry.
If you’re planning to apply for a new card in the near future and you’ve got a high credit utilization rate, consider making some early payments on your existing card balances first. If you pay down your balances before they’re reported to the credit bureaus, it could help you get your credit utilization rate as low as you can and potentially boost your scores before you send in that new application.
Your payment history is an important factor in your credit health. A single late payment can potentially have a big impact on your scores.
If you’ve missed a due date, it could be worth giving your credit card issuer a call to ask if it will remove the late payment, especially if that’s never happened before.
Another way to demonstrate your experience using credit is by showing lenders that you can juggle different types of credit. This could include credit cards, which are a type of revolving credit, as well as loans like mortgages that you pay in installments.
We generally don’t recommend applying for a loan just to build your scores though, especially if it’s going to cost you money. Also, applying for a new loan can mean a hard inquiry is logged on your credit reports, which can ding your credit.
Age of your credit history
Another factor weighed in your credit scores is the age of your credit history, or how long your active accounts have been open.
Canceling a credit card can affect the age of your credit history, especially if it’s a card you’ve had for a while, so weigh that potential impact when you’re deciding whether to close a card. Only time can offset the impact of closing an older account, but you’ll also lose the credit limit amount on a closed card, which can negatively affect your credit utilization rate.
Heads up that card issuers may decide to close your accounts if you’re not actively using them, so make sure you keep any accounts you don’t want closed active with at least an occasional minimal purchase.
Applying for a new credit card or loan typically results in a hard inquiry, which can have a negative effect on your scores. The hard inquiry’s impact is usually small, but lenders might see several hard inquiries in a short period of time as a warning sign.