Your Credit Score. And More.

There are several ways to improve your credit score. However, it’s much more important to focus on improving what’s in your credit report rather than over your credit score. Here are some quick tips to help:

• Pay Your Bills on Time, Every Month. Payment history is the largest factor in your credit score.

• Apply for Credit Only When You Need It. Try not to open too many accounts too frequently. These frequent inquiries can ding your credit.

• Keep Your Outstanding Balances Low. Keep balances below 30 percent of the credit limit on each of your revolving accounts.

• Reduce Your Total Debt. It is not necessarily bad to have debt as long as it’s manageable. Too much debt at high interest rates can get out of hand if a financial emergency comes up. Consider paying down some of your outstanding loans.

• Build Up Credit History. Maintaining a timely payment history for a mix of accounts (e.g. credit cards, auto, mortgage) over a long period can improve your score.

Since the single most important factor in credit score is payment history, using credit and paying off your balances on time will have the greatest impact on your score. Carrying a balance every month may incur interest charges, so if you can, pay off the cards in full and on time.

The best way to build a solid credit score is to manage all your accounts properly. Best practices include paying all your credit obligations on time every month, applying for credit only when needed, and keeping balances on credit cards as low as you possibly can if you cannot pay them in full each month.

A charge card is like, but not the same as, a credit card. As such, there are subtle differences in how they’re used in credit scoring.

Typically, a charge card balance is due in full each month, while credit card balances can be carried, or "revolved," from month to month. Charge cards do not have published credit limits, whereas credit cards do.

Charge card accounts factor into credit scores but are not used by the VantageScore® scoring model, due to the lack of a credit limit used in calculating "balance to credit limit" measurements.

When you close a credit card account, you lose the value of that card’s credit limit in the credit usage calculation. The credit limit is an important component when determining a consumer’s balance to credit limit or the “credit usage” ratio. This ratio rewards consumers who have low credit card balances relative to their credit limits.

If you close credit cards, especially those with large credit limits, you will likely cause your credit usage ratio to go up (if you carry balances). This can cause your score to go down considerably.

Additionally, if you close credit card accounts the credit bureaus will eventually remove them from your credit reports. Even though it can take years for an account to be removed from your credit reports, once it is gone you will get no credit for your responsible management of that account.

Medical bills are usually not reported to the credit bureaus unless they have been unpaid for a long time and have gone to collections. Collections accounts stay on the report for as long as 7 years even after you’ve paid them off. These accounts typically hurt scores, though some scoring models do not include medical collections, especially those with small balances of less than $100. VantageScore® 3.0 does not take paid collections accounts into account in its model.

Source: https://www.vantagescore.com/newsletter/your-score-vs-medical-debt/

The quantity of loans is not as important in credit scoring as the quality of how well those accounts are managed. In other words, your score is more positively impacted by keeping loans in good standing without missing payments.

Consumers are encouraged to shop for the best loan rates and conditions. Accordingly, the VantageScore® model does not penalize multiple inquiries made within a short period. When several inquiries are made within a shortened timeframe, it is assumed that the consumer is shopping around for a rate and not opening multiple lines of credit.

The VantageScore® model uses a 14-day rolling window in which all credit inquiries within that window are considered one inquiry regardless of the type of account. So regardless of whether the credit inquiry is made in response to a mortgage, auto, or bank credit card application, it will be counted only once during that 14-day window.

Credit reports reflect your credit activity. The quantity of cards is less important than how you manage your credit cards. It’s generally a good idea to have a limited number of credit cards so that you can keep low balances, with a good payment history, over a long period.

Credit balance does not positively or negatively impact credit score.

Paying off debts does not automatically boost your score. While your credit card and other loan balances may be low because of a recent payment, due to the lenders’ reporting cycles, it may take some time for the payments to be reflected in your credit score. Moreover, available credit and balances are only one of several other factors that are considered by credit score models.

Improving your credit score can be achieved over time by regularly practicing these sound financial management techniques:

• Pay your bills on time.

• Apply for credit only when it’s needed; do not open new accounts frequently or open multiple accounts within a short period.

• Keep your outstanding balances low – a good rule of thumb is not to exceed 30% of your available credit limit with each account.

• Pay any delinquent accounts as soon as possible and then keep them current.

Not necessarily. The balance of an account does not affect the speed at which you will build or re-build your credit scores. A credit card with a $5,000 balance ages just as quickly as a credit card with a $0 balance. Further, even if you pay your balance in full each month there’s no guarantee that the account will show up on your credit reports with a $0 balance. Credit card issuers report your statement balance to the credit reporting agencies. That means even if you pay your balance in full any subsequent use of the card is going to result in a statement balance greater than $0.

One of the most effective ways to build or rebuild your credit is by responsibly managing your accounts. Maintaining low balances on credit cards and never missing a payment will lead to better credit scores.

Your credit score may go down if you close a credit card account. The reason your score drops would be due to the loss of the credit limit of the closed card in your debt-to-credit limit ratio measurements.

If you carry a balance on other credit cards then your debt-to-limit ratio, calculated by dividing your aggregate credit card debt by your aggregate credit limits on open credit cards, will likely go up. This may cause your credit score to drop.

If you don’t carry a balance on other credit cards or the credit limit on the newly closed card was modest enough, then the account closure may not result in a change in your debt-to-limit ratio sufficient to result in a score reduction.

The credit reporting agencies do not remove accounts once they’ve been closed or paid off. There is no law requiring credit reporting agencies to remove accounts that are in good standing. At this time, however, the credit reporting agencies choose to remove inactive or closed accounts 10 years after they’ve been closed. Additionally, while closed or paid-off accounts are still on your credit reports they are still considered in credit scoring.

One of the differentiating factors of the VantageScore® models is the ability to calculate scores for more consumers, which includes those who are new to the credit market, infrequent credit users, or those who have two or fewer credit accounts.

The VantageScore® models are more likely to provide a score for consumers who are very new to credit and have less than 6 months of history. They also score those with activity up to two years ago on at least one of the accounts in their file.