Pay your bills on time Likewise, delinquent payments can devastate your score. Missing even one payment can knock 50 to 100 points off a good score. Skipping payments for a single month on all your bills can lower your number from a respectable 707 to the dismal range of 562 to 632, according to the credit score estimator at Bankrate.com. The simulator lets you estimate your credit score and see the impact of various credit behaviors on your score.
Tip: I've found the best way to avoid late payments is to put as many of our bills on automatic as possible. Our mortgage lender, utilities and phone service providers are happy to take their payments directly from our checking account each month. Online bill-payment systems are another way to ease monthly check-writing chore, and many provide reminder services so you don't forget a bill. The latest versions of Quicken and Money have good reminder features, as well.
Pay down your debts -- and consider charging less
Lenders like to see plenty of breathing room between the amount of debt reported on your credit cards and your total credit limits.The more debt you pay off, the wider that gap and the better your credit score.
What many people don't know is that credit scores don't distinguish between those who carry a balance on their cards and those who don't. So charging less can also improve your score -- even if you pay off your credit cards each month.
Your credit-card issuer takes a look at your account once every month or so and reports the outstanding balance on that day to the credit bureaus. This snapshot doesn't reflect whether you pay off that balance a few days later or whether you carry it from month to month.
Tip: If you plan to apply for a mortgage, car loan or other major credit account in the next year, start paying down those balances now. And if you're in the habit of charging everything in sight to your cards -- to gain more frequent flier miles, say -- consider switching more to cash in the months before you apply. Depending on your situation, the loss of a few miles could be more than made up for by a better score, and thus a lower interest rate.
This kind of advice, by the way, makes the folks in the credit scoring business more than a little nervous. Credit scorers and lenders don't want to see people "artificially" changing their behavior to pump up their scores. Moderation in using plastic is never a bad thing, however, and if the desire for a better score has you using credit more wisely, who's the loser? Oh, other than the fee-charging, interest-rate-boosting credit-card companies, of course.
Don't close old, paid-off accounts
This knowledge is frustrating to those who want to simplify their lives and reduce the opportunities for identity theft by closing unused accounts. But credit facts are credit facts.
Shutting down credit accounts lowers the total credit available to you and makes any balances you have loom larger in credit score calculations. If you close your oldest accounts, it can actually shorten the length of your reported credit history and make you seem less credit-worthy.
