“You want to avoid things like late payments, defaults, repossessions, foreclosures and third-party collections,” says John Ulzheimer, credit expert, formerly of FICO and Equifax. “And filing for bankruptcy is a horrible idea. Anything that indicates non-fulfillment of a liability is going to hurt your credit score.
2. Keep your credit utilization rate low
Weigh your balances against your credit limit to make sure you’re not using too much of the available credit, a practice that can indicate risk.
Ulzheimer recommends trying to maintain a 10% utilization rate. “The higher this ratio, the less points you will earn in this category and your scores will absolutely suffer,” he says. “In fact, the people with the highest average FICO scores have 7% utilization.”
The date your credit card provider reports to the credit bureaus can also affect your usage rate.
Ulzheimer points out that FICO’s scoring systems do not distinguish between those who pay in full each month and those who have a balance. Your usage rate at the time your transmitter reports is what is used for your score. VantageScore, however, considers whether you pay in full or carry your balance from month to month.
If you’re having trouble with high balances and growing interest payments on your cards, consider consolidating with a 0% introductory rate balance transfer credit card, but make sure you know when the rate is due. will increase and by how much.