A February survey from U.S. News & World Report shows that nearly half of survey respondents believe carrying a balance on a credit card improves your credit score. Fortunately, almost 52% know that it doesn’t raise your score. And when you carry a balance, you pay compound interest on your purchases.
- Just over 16% of respondents don’t know what their credit scores are.
- Over 35% say their credit reports contain a breakdown of their credit score, but over 56% were aware that their reports contained a list of their credit activities. Your credit score isn’t on your credit report.
- Right at 47% incorrectly say that an increase in income results in an increase in credit scores.
- A little over 40% correctly identify FICO as the score used most often by lenders.
What Does Improve Your Credit Score?
Survey respondents were asked to identify which actions could increase their scores. Here are the findings:
- Making payments on time: 93.6%.
- Using 30% or less of your available credit: 53.7%.
- Increasing your income: 47%.
- Having a mix of credit cards and loans: 39.6%.
- Increasing your credit limit: 34.6%.
- Closing a credit card account: 9.8%.
Nearly half, 47%, say that an increase in your income improves your credit score. Credit score algorithms don’t consider your income. Whether you make $40,000 or $400,000 a year, you can build a great score if you have stellar credit habits.
And almost 10% say closing a credit card can improve your score. Closing a credit card is more likely to lower your score because you lose the available credit you had with that credit card.
What Hurts Your Credit Score?
When asked what actions could hurt their scores, survey respondents select the following:
- Missing payments: 91.2%.
- Using more than 30% of your available credit: 58%.
- Closing a credit card account: 47%.
- Checking your credit score: 21%.
- Checking your credit report: 19.3%.
Many respondents correctly identify missing payments, using more than 30% of your credit limit and closing a credit card account as activities that can lower your score.
But some respondents also say that checking your credit score and your credit report hurts your credit score. Monitoring your score and credit reports are good credit habits to have, and these actions do not hurt your score at all.
What Impacts Your Credit the Most?
Most lenders use a FICO score when you apply for credit. Here are the five factors that affect your FICO score:
- Payment history: 35%.
- Amounts owed: 30%.
- Length of credit history: 15%.
- New credit: 10%.
- Credit mix: 10%.
Survey respondents were asked to select which factor influenced their score the most. Just over half accurately identify payment history, which makes up 35% of your score. Here are the findings:
- Your payment history: 50.6%.
- Length of credit history: 20.6%.
- How much you owe: 18.2%.
- Your credit mix: 7.2%.
- Something else: 2.4%.
- New credit: 1%.
Nearly 21% select length of credit history as the most influential factor. While having a long and successful credit history puts you in a position to have a great score, it’s only 15% of your credit score.
3 Ways to Spring Clean Your Credit
Once you understand how credit works, attaining and maintaining a good credit score isn’t as hard as you might think. In a way, your credit health is like a house. You have to maintain it to keep your credit score in tip-top shape.
Spring is a new beginning, so it’s the perfect time to implement three new credit habits.
Check Your Credit Reports
If you think checking your credit report lowers your score, you can relax. Reviewing your credit report is considered a soft inquiry, which means it has no impact on your score.
In the survey, 48.8% say they’ve checked their reports in the past three months, which is great. But nearly 10% have never checked their reports at all.
You can check your credit report from each of the three major credit bureaus for free every 12 months at Annual Credit Report. Right now, you can get your reports weekly through the end of 2023, but unless something unusual is going on in your life, that isn’t necessary. But do check one report from each bureau every four months.
Your goal is to make sure the information is accurate. You also want to review your report to see whether any accounts have been opened in your name. You can catch fraud on your current accounts by reviewing them online often. But your credit report is where you’ll find a new fraudulent account.
Check Your Credit Score
Checking your score, like checking your credit reports, doesn’t impact your credit score at all. There are many ways to a get your free score these days.
There are websites that offer scores, although these might be VantageScores instead of FICO scores. But that still gives you an idea of your overall credit health.
Many credit card issuers and banks also give free scores, and many are FICO scores. Checking your score once a month tells you if you’re doing a good job with your credit. If it goes down quite a bit, investigate and make sure you’re paying bills on time and keeping low utilization ratios.
Still, don’t obsess over it. Scores go up and down as new information is posted to your credit reports.
Use Credit Cards Responsibly
I’m often asked what it means to use cards responsibly. In a nutshell: It means you pay your credit card bill in full and by the due date.
After payment history, the next most influential factor in your score is the amount you owe. A key factor in that category is your credit utilization ratio, which is the amount of credit used compared with the amount of credit you have available. Keeping your ratio under 30% can benefit your credit score, but keeping it under 10% does more to boost your credit score.
Understanding the basics of how to improve your score – timely payments and keeping low credit card balances – will help you achieve or maintain a high FICO score.