A credit score is an important financial tool that affects many aspects of your financial life. In this article, we explore what influences your credit score and how to keep it high.
7 Pillars of a Strong Credit Score
To achieve a high credit score, you must adhere to several key principles:
1. On-time payments are non-negotiable 2. Master the 30% utilization rule 3. Keep old credit accounts open 4. Strategically seek new credit 5. Maintain a healthy credit mix 6. Monitor your credit reports 7. Pay more than just the minimum.
The Science Behind Your Score
To sustain a high credit score, it's essential to understand how it is calculated. The most common model is FICO, which considers five key components:
- Payment History (35%) - Amounts Owed (30%) - Length of Credit History (15%) - New Credit (10%) - Credit Mix (10%)
These factors will help you create a strategy for managing your credit.
Common Credit Score Myths Debunked
There are many myths about credit scores. Here are some:
- **Myth:** Checking my credit score will hurt it. **Fact:** Checking your own score is a soft inquiry that does not impact your score.
- **Myth:** I only have one credit score. **Fact:** You have multiple scores from the three major bureaus—Equifax, Experian, and TransUnion.
- **Myth:** Closing a paid-off credit card will improve my score. **Fact:** Closing old accounts can negatively affect your score.
Maintaining a high credit score is an ongoing process that requires consistent and thoughtful financial habits. By understanding the core factors affecting your score and dispelling common myths, you can effectively manage this valuable asset and secure greater financial freedom.