Payment history and utilization make up 65% of your FICO® score! See How Is Your Credit Score Determined? What information these two factors evaluate is critical to a good credit score.
Payment history shows potential creditors how long a trade line has been open, whether or not it’s active, and how often payments are made on time. It’s considered one of the best indicators of how new credit will be repaid. Closing or not regularly using a line of credit, late payments, and only paying minimums, negatively affect your payment history. See Credit Mistakes That May Be Costing You Money.
Utilization is the difference between the maximum credit available on any particular trade line and how much is owed on that line. Currently a 30% or lower utilization rate is good, 10% or lower is optimal. See Debt-to-Income Ratio vs. Debt-to-Credit Ratio. This means that for a high utilization score, a credit card with a $1,000 limit should never have a balance of more than $300 and ideally no more than $100.
Keeping spending at 30% isn’t always possible and sometimes bills get paid late but there are things you can do to minimize the damage and fix damage already done.
- Know credit limits. Even if you pay every bill off in full every month, exceeding your credit limit damages your score so keep your credit limits in mind while spending.
- Pay more than the minimum. The closer you can get to a 10%-30% utilization ratio the better your credit score will be. (And there’s nothing saying you can’t pay that bill down before the due date.)
- Not all bills are created equal. One of the worst things you can do to your payment history is pay your mortgage bill late. A late payment on a credit card isn’t ideal but it won’t necessarily stop you from buying a home or refinancing, late mortgage payments can.
- Ask for forgiveness: Traveling or just plain distracted and missed a bill? Call the creditor the moment you remember. You can usually pay over the phone and if they haven’t reported the late pay to the credit bureaus (most are reported 30+ days past due) you can ask the creditor for late payment forgiveness at least once. If you have a good history of paying on time, most creditors will waive the late fees and not report the late to the credit bureaus the first time you late pay.
- Check up on AutoPay: Paying your bills via autopay? Check up on the transactions at least once per quarter to make sure the bills are being paid on time. Sometimes they aren’t and that means a reported late pay and ding to your credit every single month.
- Don’t just pay on time, pay early. You get a little credit score bump for paying your bills before they’re due – an easy way to nudge up your credit score if you have the cash in hand.