Your creditworthiness is a huge determining factor for whether you’ll qualify for a loan or line of credit. There are steps you can take to build (and keep up) a good creditworthy reputation so you don’t have to worry as much about whether you’ll be accepted and can focus more on how low of an interest rate you can score.
Speaking of scoring, your credit score is the ultimate determinant of your creditworthiness (and maybe even your date-ability—but that’s another story). If you want to hit that 800-mark, or even just get yourself into the “good” range, there are several steps you can take.
Pay your bills on time and in full
Payment history plays a big part in calculating your credit score—in fact, it’s the No. 1 factor in both your FICO score and VantageScore at 35% and 40%, respectively. On-time payments can go a long way toward helping improve your credit score.
And while making the minimum monthly payment is the bare minimum flair, if you really want to express yourself (or have less debt and boost your creditworthiness), you’d be better off paying your bills in full to avoid accruing interest.
If you’re feeling crushed by debt, start by developing a repayment plan. A loan payoff calculator can help you see when you’ll be debt-free and determine how much you can save on interest in the long run. Who said you need 37 pieces of flair?
Keep your credit utilization and DTI low
By paying your bills on time and in full, you can kill two birds with one stone. This also allows you to keep your credit utilization ratio low. Your credit utilization is the total amount you owe compared to your total credit limit, and it accounts for 30% of your FICO score and 20% of your VantageScore.
Ideally, you want to keep your credit utilization below 30%—but the lower, the better. So, if you have a $15,000 credit limit, you want to make sure your balance is below $4,500. If you want a really excellent score, see if you can keep your credit utilization below 10%.
Your debt-to-income (DTI) ratio also can influence your creditworthiness, especially if you’re looking to buy a house with a mortgage. Lenders generally are looking for your DTI to be at or below 43% to get a qualified mortgage.
Don’t close old accounts
If you have an old credit card that you don’t really use anymore, you may be tempted to close the account. But not so fast! Your length of credit history makes up a good chunk of your credit score, and closing an account can hurt the average age of your credit. Instead of closing the account, consider using it for occasional small purchases to keep it active. Or keep it open but don’t use it to help keep your credit utilization ratio down.
Alternatively, if it’s a credit card that you’ve outgrown, see if you can get an upgrade with your current issuer. This way, you don’t have to take out a new line of credit—which can also have an impact on your credit score—to meet your needs. Plus, this might allow you to tell your mom that your longest relationship isn’t with the sweater she bought you for your birthday 10 years ago. Not that there’s anything wrong with that.
By Casey Musarra
Casey Musarra is a personal finance writer with over a decade of writing experience and a credit score hovering near 800. She has written several hundred articles on topics ranging from taxes to debt-free living. Previous bylines include newsday.com and philly.com.