Credit scores measure credit risk.  Lenders and creditors use the credit score to determine how much of a risk you are as a borrower or a creditor.  You’d be surprised at how your actions as a creditor can affect your credit score.  For example, did you know that closing out an account that still has a balance lowers your credit score?  Indeed, it does.  Read on to find out more behaviors that affect your credit score.

Pay your bills on time
The best thing you can do to improve your credit score is to pay your bills on time.  Late payments have the biggest impact on your score.  If you find that you cannot make a payment, make arrangements with your creditor or lender as soon as possible.  In many cases, your creditor or lender can work with you to waive a monthly payment.

Many banks have online bill paying systems that allow you to send payments automatically.  If your bank has such system, take advantage of it to avoid falling behind on your monthly bills.

Avoid max-outs
Having your credit account balances at or close to the limit is harmful to your credit score.  Maxing out your credit cards makes it seem as if you are taking on too much debt.  A good rule of thumb is to keep balances at or below 30% of the limit.  That means, if you have a credit card with a $1,000 credit limit, you should keep your balance below $300.

Don’t close out that account just yet
A longer, well-managed credit history has a much better effect on your credit score than a short history, even if you paid all the bills on time.  Try keeping your oldest credit account open as long as possible, especially if the relationship continues to be beneficial.

Never close out a credit card that still has a balance.  This makes your credit limit drop to zero while your balance still remains.  The effect is that it looks as if you have maxed out your credit card, and subsequently decreases your credit score.

Keep credit-based applications to a minimum
Avoid applying for credit cards unnecessarily, even if the store clerk says you can save 10% on your purchase.  Each time you make a credit-based application, an inquiry is added to your credit report.  Numerous inquiries lower your credit score.  Before you fill out that application, ask yourself if you really need the credit card.

A less than favorable credit score won’t haunt you forever.  Begin taking the steps to improve your credit score now and enjoy the effects later once your score starts to improve.

-Kaung
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