Three steps to a great credit score

Three steps to a great credit score

1. Don’t close credit card accounts to improve your credit score.

You might have a good reason to shutter your account — you don’t want to pay an annual fee, you’re concerned about identity fraud, or you want to reduce the temptation to overspend — but don’t do it for the sole purpose of raising your credit score.

One factor in your credit score is your utilization, which is the ratio of balances owed compared to the credit limits on revolving accounts such as credit cards. Utilization is calculated for each credit card you have and across all of your cards. The lower your utilization, the better for your credit score. Closing a credit card account that has a zero balance excludes that credit limit from the overall utilization calculation, which can make your utilization increase and in turn, lower your score.

For the same reason, it’s also a bad idea to ask for lower credit limits on your credit cards if your goal is to improve your score. Doing so can only push your utilization higher.

Tip: If you must close a credit card account but want to keep your score high, pay down balances on other accounts to mitigate the effect.

2. Paying in full doesn’t hide a high credit card balance from your credit score.

If you’re consistently charging near the credit limit on your credit card but pay the balance in full when each bill arrives, you might be hurting your credit score. That’s because your score considers the account balance shown on your credit report. Your credit report will reflect the account balance at the time the issuer supplied it to the credit reporting agency, which will typically be the balance as of your last statement date.

Tip: If you pay in full each month but need to bump your score higher for an upcoming credit check, charge less on your credit cards.

3. Light use of credit cards is best for your credit score.

Maxing out your credit cards can obviously have a negative impact on your score. Using the majority of your credit limit is not good, either. Light use of your cards is best. Using 10 percent of your credit limit will be better than using 30 percent, which in turn is better than 50 percent. A small balance is actually slightly better than a zero balance (though it doesn’t matter to the score if you actually carry a balance).

Tip: If you need to raise your credit score, look at your monthly billing statements to see how your balances compare to your credit limits. Consider increasing your payments, or if you pay in full, using your credit cards less often.