Credit Score 101

What impacts your credit score, and how can you improve each metric?

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There are 6 major contributors to your credit score. 2 of them are considered to have a High Impact, while the other 4 have a lower impact. Understanding these will help you to optimize your score for better rates on your home, or better credit cards, etc.

(1) On Time Payments (High Impact) :

Pretty self explanatory here. Pay your statement credit card balance before the due date. Use your card for as much as you can (collect rewards), and simply pay the statement balance, or just pay the entire balance every week.

There is no excuse to not have this at 100%. You can set up automatic full payments before each due date. If you let a balance carry over, you are going to get shafted on interest which wipes out any rewards you have earned.

(2) Credit Utilization Rate (High Impact):

This is the total credit you are using across all accounts, divided by the sum of your credit availability. If you have a $10,000 credit card and the balance is $2,000, you are at 20%. Keep this below 20% to keep your score healthy.

Another way to improve this is to increase your credit limits. Simply call or get online for each card/account and request a credit limit increase. This is a soft inquiry, so it never hurts to request, and usually you'll get it. If you do not use a card anymore, keep it open.

(3) Derogatory Remarks (High Impact):

If you allow an account to go to collections or bankruptcy, this is where it appears. These stick around for a long time. Avoid this by following the advice for every other contributor.

(4) Age of Credit (Medium Impact):

This is tough when starting to build credit because it's obviously going to be lower as you open new accounts. This is the average age of each account you hold.

Do your research, get cards that you can use for a long time that provide good rewards. Do not open a bunch of store credit cards. If you're flipping, it makes sense to get one for extra rewards, like Walmart 5% back. Don't get too hung up on this one as you're new to this.

(5) Total Accounts (Low Impact):

This is simply the total number of accounts you have. Obviously more new accounts will drop your age of credit, but age of credit has a higher impact than total accounts. So stick to my advice above. Low impact, don't sweat over it.

(6) Credit Inquiries (Low Impact):

Thes are the hard credit inquiries made under your name by potential lenders. Long story short don't be applying for a bunch of credit for no reason.

Do your research first. If you are looking for a home loan you can shop around in a 45 day period without getting multiple hard inquiries on your score. Take advantage of this. This will naturally remain low if you are following the prior advice.

If you have never had a credit card, I can't stress enough the importance of opening one and building your credit score. A time will come when you need one. If you're a student get a student card and put your gas and groceries on there, obviously paying it off every month.

If you're new to credit, the low-medium impacts will just take time, however you are in complete control of the high impact items. Focus on perfecting these.

Pay your bill, pay it often, and let your credit score work for you, not against you.

From @TheRule8618 :

Another thing to highlight is you can add your child as an authorized users (daughter was 2 when she got added) and then she will have 16 years of positive credit history when she turns 18