A credit score is a three-digit number that stands for your creditworthiness. This means it is used to determine your creditworthiness for loans and credit cards. It also plays a major role in determining your loan terms.

So, the interest rates offered, and the repayment standings are all based on your credit score. Creating a credit history is easy. It is important to have a score in place; you should continuously keep a tab on its progress as there are companies that monitor your credit reports. Once you build your score, you must take measures to maintain it as well.

Discipline and sincerity go a long way when it comes to maintaining good financial health, whether it is your investments or the lines of credit you pick. This article looks at a few of the time-tested habits that lead to good credit history and hence can lead to a good credit score.

• What can you do to Maintain a High Credit Score?
• What is the most Important Factor in Maintaining a High Credit Score?
• Why is it Important to Maintain a High Credit Score?
• What are 5 Factors that Affect a Credit Score?
• What Credit Score matters most?
• What does Excellent Credit mean?
• What Bills Affect your Credit Score?
• How can I raise my Credit Score 50 points Fast?

What can you do to Maintain a High Credit Score?

There are many benefits of having a good credit score, such as enjoying a lower interest rate on your credit cards and loans. A good credit score also allows you to save money on insurance and security deposits on new utilities and cell phone service. Using your credit wisely and responsibly is what helps you to maintain a good score.

1. Know What Goes Into a Good Credit Score

The more you know about what goes into your credit score, the easier it will be to maintain a good one. Five key pieces of information are used to calculate your credit score—your payment history, level of debt, credit age, mix of credit, and recent credit.

Read Also: What the UltraFICO Could do for Your Credit Score

Some things do not affect your credit score. For example, checking account overdrafts and utility payments won’t automatically help (or hurt) your credit score.

2. Make regular and timely repayments as scheduled

The first element you need to succeed in your financial responsibilities is to maintain a regular repayment schedule. Many people set up calendars with important dates and due amounts marked on it. This gives the borrower a clear number to be set aside each month for their credit card dues and loan EMIs.

Individuals often find themselves struggling through the month due to a lack of planning and mismanagement of funds. Once money is set aside basis the priorities, you can be at ease for the rest of the month as the bills are taken care of.

3. Keep Credit Card Balance low

The higher your credit card balance in relation to your credit limit, the worse your credit score will be. Your combined credit card balances should be within 30 percent of your combined credit limits to maintain a good credit score. That’s $300 on credit cards with combined limits of $1,000.

Charging more than 30 percent of your credit limit is risky even if you plan to pay off the balance when your billing statement arrives. Card issuers typically report the balance when your statement closes, so that’s the number that will be reflected on your credit report. It’s a good idea to keep tabs on your accounts online and pay enough to reduce your balances to less than 30 percent just before the billing month closes.

4. Run regular checks on your credit utilization

Avoid showing a credit hungry behaviour by keeping a check on your credit utilization ratio. This ratio is not just for your credit card, but your overall credit limit which includes your loans and credit card limits together. The ideal credit utilization ratio is 30% which means if you have a credit limit of INR 1 lakh, then utilizing up to INR 30,000 will not depict you as a credit hungry borrower.

A regular behavior of high credit utilization may show credit hungry behavior and adversely affect your credit score. In case you have spotted a drop in your score due to this reason, you can approach your card issuer and request to increase your credit limit or get another credit card.

You must ensure that you keep a track of your expenses. A second card will increase your credit limit and fix your credit hungry rating only if you properly take care credit payments

5. Don’t close old Credit Cards

When you close a credit card, your credit card issuer no longer sends updates to the three credit bureaus—Experian, Equifax, and TransUnion—and the credit scoring formula places less weight on inactive accounts.

After 10 years or so, the credit bureau will remove that closed account’s history from your credit report, and losing that credit history will shorten your average credit age and cause your credit score to drop.

Closing a credit card also reduces your available credit. For example, if you have three cards with a combined credit limit of $10,000 and you close one with a $3,000 limit, your combined credit limit will be reduced to $7,000. Since your goal is to keep your credit card balances at less than 30 percent of your available credit, closing that card reduces your threshold by $900.

What is the most Important Factor in Maintaining a High Credit Score?

Credit scores provide lenders a holistic look into your financial history, but there’s one factor that matters the most.

Payment history — whether you pay on time or late — is the most important factor of your credit score making up a whopping 35% of your score. That’s more than any one of the other four main factors, which range from 10% to 30%.

If you can maintain positive payment history on all of your credit accounts, from credit cards to loans, you can show current and prospective lenders you can repay loans and be well on your way to a good credit score.

The general rule of thumb is that the higher your credit score, the better chances you have at qualifying for credit and receiving the best rates. And while that three-digit number may seem mysterious, you can raise your credit score by understanding the five key factors that make up your score and taking certain actions.

Below, we review the five factors of your credit score and provide tips on how to master each.

1. Payment history

What it means: Whether you’ve paid past credit accounts on time.

How to master it: Make sure you pay every bill on time. This can be done by setting up autopay, alerts and/or calendar reminders. When you set up autopay, always set it for at least the minimum due. This keeps your account current and results in positive information being sent to the credit bureaus.

While you don’t have to pay your bill in full to master this factor (only the minimum payment is required), we encourage you to so you can reduce your amounts owed, which we explain next.

2. Amounts owed

What it means: The total amount of credit and loans you’re using compared to your total credit limit, also known as your credit utilization rate.

How to master it: Try to maintain a low credit utilization rate below 10% (but not 0%), which is the threshold FICO “high-achievers” (consumers with credit scores 750 and above) sustain. 

To find your credit utilization rate, divide your total balance by your total credit limit and multiply by 100 to get the percentage.

Let’s say you have two cards, the Citi® Double Cash Card with a $1,000 balance and $5,000 credit limit and the Blue Cash Preferred® Card from American Express with a $2,000 balance and $10,000 credit limit on each.

Combined, your credit limits across both cards total $15,000 and your combined balances equal $3,000.

Here’s the math: ($1,000 + $2,000) / ($5,000 + $10,000) = .20 x 100 = 20%

3. Length of credit history

What it means: The average length of time you’ve had credit.

How to master it: The main way to have a long credit history is to wait. The only way the length of your credit history will increase is by maintaining old credit accounts (and not closing your oldest credit card). It’s also key to be aware of how opening new credit accounts affects the average length of time you’ve had credit.

To calculate your length of credit history, add up how long all your accounts have been opened and divide by the number of accounts. For instance, if you already have a credit card that’s 10 years old and open a new one today, your average credit history is halved from 10 years to 5 years.

Here’s the math: (10 years + 0 years) / 2 cards = an average of 5 years per card

4. New credit

What it means: How often you apply for and open new accounts that result in a hard inquiry on your credit report.

How to master it: When you’re looking to apply for new credit, consider whether a hard or soft inquiry will be performed. Hard inquiries may cause your credit score to drop a few points, though your score should recover quickly.

You can check if you prequalify for credit cards and loans without hurting your credit score. This allows you to shop around for the best offers without hurting your credit score.

5. Credit mix

What it means: The variety of credit products you have, including credit cards (a type of revolving credit), installment loans, auto loans, mortgage loans and student loans.

How to master it: While there’s no clear-cut answer to how many different types of credit card accounts you should have, it’s a good idea to have more than one type. That may include a credit card plus an auto loan, mortgage or installment loan for your phone, to name a few.

Why is it Important to Maintain a High Credit Score?

1. Credit Can Affect Where You Live

Before you can buy a house, mortgage lenders want to know that you won’t default on your mortgage. If you don’t have good credit, the lender will consider it risky to give you a mortgage loan.

If you’re approved for a mortgage, your credit affects your interest rate. Interest rates directly impact your monthly mortgage payment, by either increasing or decreasing the amount you are charged. Low credit scores will cause a loan application to be disapproved, or approved at a higher rate.

While you may not currently be in the market for a house, your credit is still important. Landlords also use your credit to decide whether to rent to you. Property rental is considered to be a loan, and owners want to be sure they will be paid.

2. Auto Loans Require Good Credit

Most people do not have the money to fund a vehicle and cover living expenses at the same time. Many will apply for an auto loan. Your credit rating affects whether you are qualified, the amount you can receive, and the interest rate of the loan. Generally, loan applicants with a higher credit rating can qualify for larger loan amounts with lower interest rates.

A low credit rating will limit your choices. Few lenders will work with you if you have low credit—those that do will charge a much higher interest rate on your auto loan. A higher interest rate will significantly raise the amount you pay monthly on the car, which raises the total amount you pay over time.

3. Credit Checks For Employment

Many employers conduct credit checks as part of the hiring process. (Note that employers check credit reports, not credit scores. Some jurisdictions prohibit prospective employers from using applicants’ credit reports.) If you haven’t demonstrated financial responsibility, a prospective employer might be hesitant to hire you.

For example, the employer might believe your level of debt is too high for the salary offered. Some employers also check credit reports before giving a promotion or raise, especially for financially-related or executive positions.

4. Business Loans Require Good Credit

Many people have dreams of starting their own business. Most business startups require a sizable amount of cash that you might not have available. In that case, you’ll need to obtain a small business loan. Among other things, you need to have good credit to qualify for the business loan.

5. Living Expenses Can Require Good Credit

It might be somewhat shocking to learn that your credit is needed to establish utility services. Electric companies contend that you’re borrowing one month of electric service. Before turning on your electricity, the company will check to see if you have good credit. Most utility services conduct credit checks, including cable, telephone, water, even cell phone service providers.

6. You Need Good Credit To Live Comfortably

Since your credit is defined by how you’ve paid (or not paid) your bills in the past, many businesses—landlords, mortgage lenders, utility providers, and even employers—use your credit to predict your future financial responsibility. Anytime you need to borrow money, finance an essential item, or set up services, your history of paying bills (your credit) is called into question.

What are 5 Factors that Affect a Credit Score?

While the exact criteria used by each scoring model varies, here are the most common factors that affect your credit scores.

1. Payment history

Payment history is the most important ingredient in credit scoring, and even one missed payment can have a negative impact on your score. Lenders want to be sure that you will pay back your debt, and on time, when they are considering you for new credit. Payment history accounts for 35% of your FICO^® Score^☉ , the credit score used by most lenders.

2. Credit utilization

Your credit utilization ratio is calculated by dividing the total revolving credit you are currently using by the total of all your revolving credit limits. This ratio looks at how much of your available credit you’re utilizing and can give a snapshot of how reliant you are on non-cash funds. Using more than 30% of your available credit is a negative to creditors. Credit utilization accounts for 30% of your FICO^® Score.

3. Credit history length

How long you’ve held credit accounts makes up 15% of your FICO^® Score. This includes the age of your oldest credit account, the age of your newest credit account and the average age of all your accounts. Generally, the longer your credit history, the higher your credit scores.

4. Credit mix

People with top credit scores often carry a diverse portfolio of credit accounts, which might include a car loan, credit card, student loan, mortgage or other credit products. Credit scoring models consider the types of accounts and how many of each you have as an indication of how well you manage a wide range of credit products. Credit mix accounts for 10% of your FICO^® Score.

5. New credit

The number of credit accounts you’ve recently opened, as well as the number of hard inquiries lenders make when you apply for credit, accounts for 10% of your FICO^® Score. Too many accounts or inquiries can indicate increased risk, and as such can hurt your credit score.

What Credit Score matters most?

Only about 1.6% of the U.S. population with a credit score has a perfect 850, according to FICO’s most recent statistics. But it might not matter as much as you may think.

According to some experts CNBC Select spoke to, a perfect credit score is not necessary to qualify for the best credit cards, loans, and interest rates. In fact, reaching a credit score of 760 will likely get you all the same benefits — and the best deals — on everything from mortgages and car loans to credit card rewards.

Below, we ask them why a 760 score is the only one that matters and reveal what it takes for lenders to see you as creditworthy.

Why experts say 760 is the credit score to aim for

While it might be exciting for some to aim to join the 850 club, it comes with no additional benefits that you likely won’t already get with a 760 score.

“The best published interest rates for auto loans are 720+ and for mortgages 760+,” financial expert John Ulzheimer, formerly of FICO and Equifax, tells CNBC Select. “As such, I always tell people, shoot for 760 or better. That way, they’re safe for all loan types and cards.”

For Jim Droske, president of the credit counseling company Illinois Credit Services (and someone who actually has a perfect credit score), the threshold is 760 as well. But he says aiming for 780 is even better to be “the safest” in any type of lending situation. Anything higher, though, won’t be more beneficial, nor would it get you a better offer with more favorable terms.

“If you’re above 760, or 780, certainly you’re already getting the best you can get,” Droske tells CNBC Select. “You’re already hitting that pinnacle of what [lenders]care about.” A high enough credit score shows lenders and credit card issuers that you are less of a risk and more likely to pay back the loan, versus if you had a lower credit score.

“Anything above that is really just maybe a little pride,” says Droske. “When you have already reached the summit, no need to look for a ladder.”

What FICO says about having the perfect credit score

Even a representative at FICO — the scoring model most lenders use to check applicants’ creditworthiness — saysthat having a credit score in the top 2% of the U.S. population won’t further benefit you, so there’s no need to stress.

“The reality is that, from the standpoint of qualifying for credit, it doesn’t matter whether you have a perfect 850 or a score just below that,” Ethan Dornhelm, VP of FICO scores and predictive analytics, tells CNBC Select. “To lenders, a consumer with a score in the 800s is a sparkling applicant.”

What does Excellent Credit mean?

A perfect credit score of 850 is hard to get, but an “excellent” credit score is more achievable.

If you want to get the best credit cards, mortgages and competitive loan rates — which can save you money over time — excellent credit can help you qualify. “Excellent” is the highest tier of credit scores you can have.

When you apply for credit, lenders review a detailed summary of your financial history, known as your credit report, to determine whether you qualify for a particular form of credit. And one part of your credit report is the three-digit number known as your credit score.

Your credit score helps tell lenders your ability to repay money lent to you.

When determining your credit score, credit agencies consider several factors related to your financial history, including payment history (whether you paid your bill on time) and amounts owed, from your current and past credit accounts.

Credit score ranges vary based on the credit scoring model used (FICO versus VantageScore) and the credit bureau (Experian, Equifax and TransUnion) that pulls the score. Below, you can check which credit score range you fall into, using estimates from Experian.

FICO Score

• Very poor: 300 to 579
• Fair: 580 to 669
• Good: 670 to 739
• Very good: 740 to 799
• Excellent: 800 to 850

VantageScore

• Very poor: 300 to 499
• Poor: 500 to 600
• Fair: 601 to 660
• Good: 661 to 780
• Excellent: 781 to 850

What Bills Affect your Credit Score?

The biggest single influence on your credit scores is paying bills on time, and historically that’s meant credit bills—payments on loans, credit cards and other debts. But now credit scores can benefit from timely utility and service payments as well.

Credit scoring software programs, known as scoring models, perform complex statistical analysis on the data in your credit reports—the records showing your history of borrowing money and paying your bills. Scoring models generate a three-digit score, based on your predicted likelihood of paying your bills.

Models may use different score ranges, but all typically assign higher scores to individuals seen as likelier to repay their loans and lower scores to those seen as riskier borrowers.

While no two models operate identically, the FICO^® Score^☉ , used in 90% of all U.S. lending decisions, says payment history—your pattern of paying bills on time—is the single most significant influence on your FICO^® Score, responsible for as much as 35% of the score. FICO rival VantageScore^® has similarly cited payment history as the most influential factor affecting its scores.

Traditionally, credit reports have recorded payments on two types of debt: installment loans and revolving credit accounts.

• With an installment loan, you borrow a lump sum of money and pay it back in a series of regular payments over a set number of months. Each payment, or installment, is typically the same amount. Student loans, car loans, and mortgages are all examples of installment loans.
• Revolving loans, such as credit card accounts and some kinds of home equity loans, allow you to borrow against a specified borrowing limit and make repayments of varying amounts, as long as you meet a required minimum payment each month.

When it comes to how your bills affect your credit score, please remember that the consequences of not paying your bills can be serious beyond their effects on your score. These actions have an impact on your lifestyle as well as your credit score and your overall financial health.

Remember to keep track of your score!

How can I raise my Credit Score 50 points Fast?

Statistics show that one in three Americans don’t realize the effects of having bad credit. However, the difficulties of low credit scores will catch up to consumers whether they expect it or not.

Before you experience these consequences yourself, start taking steps in the right direction. You can begin by raising your credit score 50 points, and you will already see impressive benefits from this change. Here are some suggestions on how you can make that happen.

1. Check Your Credit Report for Errors

There is a chance that your credit score is not entirely correctly reported. Just like any institution, there is room for human error. You can request a copy of your report free of charge or for an insignificant price. Contact one of the credit bureaus or a specialized company, and you should receive it shortly.

Then, inspect the entire report for any mistakes. In case you find any wrongfully filed claims or missing payments, anything along those lines, you can dispute it. If you are correct, you can get that information taken off of your report. Since the bureaus are obligated to address the issue within 30 days, you should see improvements within a month.

It makes sense to repeat this process from time to time. New errors can occur at any time, so you need to keep an eye on your report. The earlier you spot an issue, the more likely it is you will get it resolved efficiently.

2. Set Up Recurring Payments

You can also do yourself a favor by automating some of your payments. Suffering from the consequences of bad credit can make your life stressful as is. When you add the hardship of being flooded with bills, it only makes it worse. Choose any of the following ways that are suitable for you:

• Go directly to the vendor – Contact the company, vendor, or creditor you make payments to or visit their website. The process of setting up an automatic payment will be quick and easy.
• Go through your bank – Log onto your online banking account, go to the bill pay section, and choose the needed functionality.
• Use your credit card – You can plug your credit card information in to pay bills, such as a cell phone bill, without any third parties.

3. Open a New Credit Card

As mentioned earlier, your credit score is affected by your total available credit. It is compared to how much you use and calculated as a percentage. This suggests that raising your credit score 50 points can be done by expanding the maximum balance. A new credit card easily fulfills this need.

For example, you have used $2,000 out of $4,000 available to you, which is a 50% utilization rate. This is not the worst but can definitely be improved. If you open another card under similar conditions and stick to your regular spending of $2,000, you lower the rate to 25% without cutting your budget.

Make sure to use the second card. Ideally, you should spend between 1% and 20% on both cards. Also, an essential thing to remember is that it is not free money, and you will have to pay it back. So, keep your spending at bay.

4. Diversify the Types of Credit You Get

There are multiple types of credit that bureaus consider when calculating your score. If you qualify for them and manage them successfully, it shows creditors that you are a reliable borrower. In the end, you can increase your FICO score by 50 points or even more.

Here is what you should take a look at:

• Revolving credit – The most common type within this category is credit cards. The process of borrowing money and paying back the amount you have used on a rotating basis keeps your credit activity current.
• Installment credit – This arrangement specifies payment amounts for a certain amount of time. Student loans and home equity loans fit this description.
• Secured credit – This form requires some form of collateral, which is used as a lien against the loan. Examples are secured credit cards, mortgage or auto loans.
• Open credit – Examples include company charge cards, cell phone accounts, and home utilities. They don’t acquire interest but appear on your report regardless. In any case, you should still make timely payments even with 0% interest.

5. Always Pay Your Bills on Time

Missed payments never look good on your report. In fact, it is one of the most significant factors determining your overall score. There have been cases when a credit score dropped 50 points or even 100 points because of a single late payment. You don’t want your creditors to see your inability to pay responsibly. There is no denying – being careless with your payments is not advisable.

Read Also: Payment History is The Biggest Part of Your Credit Score: Here’s How to Fix it

Unfortunately, it will take more on-time payments to make your score rise in comparison to how quickly it could drop. Make sure to stick to your agreed upon payment schedule each month. It will take you some time, but it is the most valuable tool in the improvement of your credit. Convert this rule into a habit, and it will become an innate part of your daily life.

Bottom Line

Even though there aren’t any word-for-word scripts for improving your scores, these tips have proven to be useful. After reading our article, you should be well equipped to make real progress in your finances.

The question of how long it takes to increase your credit score by 50 points does not have a definitive answer. It will depend on where you start, your income, and your determination. But in the end, you will be glad you did it – you can max out your rewards, improve your chances for loan approval, get lower interest rates on mortgages and other loans, etc.

Overall, good credit opens up opportunities that you might not have access to yet. But achieving this goal is not always easy.