The Top 5 Tips to Build a Tiptop Credit Score

Credit card with dollars

Over the past three years of writing this column, I've answered many interesting questions about credit cards, credit reporting and credit scores. Sadly, this will be last column as the Credit Card Adviser. My next adventure will be in residential real estate as an agent based in New York.

The good news is you can still get answers to your credit questions. Bankrate credit card reporter Janna Herron will take over the Credit Card Adviser column. Please send her your credit card or credit score questions.

Since so many credit card questions have also dealt with credit scores, I've decided to list my top four lessons about credit.

1. Don't close credit card accounts to improve your credit score. You might have a good reason to shutter your account -- you don't want to pay an annual fee, you're concerned about identity fraud, or you want to reduce the temptation to overspend -- but don't do it for the sole purpose of raising your credit score.

One factor in your credit score is your utilization, which is the ratio of balances owed compared to the credit limits on revolving accounts such as credit cards. Utilization is calculated for each credit card you have and across all of your cards. The lower your utilization, the better for your credit score. Closing a credit card account that has a zero balance excludes that credit limit from the overall utilization calculation, which can make your utilization increase and in turn, lower your score.

For the same reason, it's also a bad idea to ask for lower credit limits on your credit cards if your goal is to improve your score. Doing so can only push your utilization higher.

Tip: If you must close a credit card account but want to keep your score high, pay down balances on other accounts to mitigate the effect.

2. Paying in full doesn't hide a high credit card balance from your credit score. If you're consistently charging near the credit limit on your credit card but pay the balance in full when each bill arrives, you might be hurting your credit score. That's because your score considers the account balance shown on your credit report. Your credit report will reflect the account balance at the time the issuer supplied it to the credit reporting agency, which will typically be the balance as of your last statement date.

Tip: If you pay in full each month but need to bump your score higher for an upcoming credit check, charge less on your credit cards.

3. Light use of credit cards is best for your credit score. Maxing out your credit cards can obviously have a negative impact on your score. Using the majority of your credit limit is not good, either. Light use of your cards is best. Using 10% of your credit limit will be better than using 30%, which in turn is better than 50%. A small balance is actually slightly better than a zero balance (though it doesn't matter to the score if you actually carry a balance).

Tip: If you need to raise your credit score, look at your monthly billing statements to see how your balances compare to your credit limits. Consider increasing your payments, or if you pay in full, using your credit cards less often.

4. You have more than one credit score. Your credit score depends on the scoring model used to calculate it. There are numerous scoring models in existence such as FICO and VantageScore.

Each model is somewhat different. Score ranges can vary, as will the weight placed on certain categories of credit data. For instance, FICO scores generally range from 300 to 850 and place the most emphasis on the payment history category, which accounts for 35% of the score. VantageScore, a model developed jointly by three major credit reporting agencies, also considers payment history to be the most important category, but it's worth slightly less at 32%. Its scores range from 501 to 990.

Any given score will consider information from just one credit report. The data on each of your credit reports at the three main credit-reporting agencies -- Equifax, Experian and TransUnion -- can vary and change over time, so your score also can differ from bureau to bureau.

My point is you can't count on the lender seeing the exact same number you see when you check your credit score. The score you pull today may not be the score a lender pulls one month from now.

Tip: If you're trying to build better credit for an upcoming credit check, focus on maintaining good credit habits (paying bills on time, paying down card balances, etc.) and keeping your credit reports accurate, and not on which score the lender may be using. When checking your own score, look at the reason your score isn't higher.

5. Your credit score doesn't actually change. That is, your score doesn't really increase or decrease because it's calculated fresh each time you, a lender or business requests it. Don't take my word for it. FICO's consumer affairs manager, Barry Paperno, explained in a recent Q-and-A with Bankrate that "scores are calculated each time they're requested, as opposed to being calculated and stored somewhere and then retrieved."

Your score is merely a snapshot of your credit behavior. A smarter way to think about score improvement is to concentrate on actions and habits that will result in a higher credit score in the future. For example, paying down card balances will change the balances on your credit report, and a new score would reflect those lower balances.

Tip: Your score isn't being looked at every day, so there's no benefit to micromanaging it. Focus on long-term habits that will improve your score over time, and check your credit reports periodically for accuracy. Building good credit is a marathon, not a sprint.

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