I Have Excellent Credit and Only Follow These 2 Rules

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KEY POINTS

  • You can build an excellent credit score by focusing on a couple of factors that matter most.
  • To raise your credit score, pay your bills on time and avoid charging too much to your credit cards.


Credit scores are complicated, but getting a high score doesn't have to be.

Learning about credit scores can often feel overwhelming. There are all kinds of different types of credit scores, and they all seem to work differently. When you just want to figure out how to raise your credit score, it's hard to know where to begin or what steps to take.

But you don't need to become a credit score expert to improve your own score. In fact, it's really simple to get and keep a high credit score that will qualify you for the top credit cards. My score has been in the "excellent credit" range for going on a decade now, and there's only two things I do.

1. Always pay on time

The single most important thing you can do for your credit is paying your bills on time. Your payment history is the factor that has the biggest impact on your credit score. Each on-time payment is good for your credit, but even one late payment can do serious damage.

Now, there are some details to clarify. To start, what type of bills actually matter for your payment history and, in turn, your credit score?

Credit card and loan payments are reported on your credit history, so they'll affect your credit. Other types of bills, such as utilities, normally aren't reported unless they get turned over to collections for nonpayment. That means they aren't going to help your credit, but they could hurt it.

The best and safest option is to pay all your bills by the due date. You technically have some wiggle room here. Creditors can't report a payment as late on your credit file until it's at least 30 days past due. But it's good to get into the habit of paying on time, especially since creditors don't need to wait 30 days to charge you late fees.

2. Don't charge more than 20% of your credit limit

After your payment history, the second key factor in your credit score is amounts owed. It's also known as your credit utilization ratio, or your card balances divided by your credit limits. For example, if you have one card with a $1,000 balance and a $10,000 limit, your credit utilization would be 10%.

Even though you can spend up to your credit limit, it's much better for your credit score if you don't. The question a lot of people have is how low their credit utilization should be.

The traditional recommendation from credit experts is to stay below 30% credit utilization. However, that's just a general guideline. There's no strict cutoff point for "good" or "bad" credit utilization. The only thing we know for sure is that lower credit utilization is better for your credit score.

Personally, I like to avoid spending more than 20% of my credit limit to play it safe. It's low enough to have a positive impact on my credit score. Even if I miss this mark, I still have some leeway before getting into the danger zone. And it's always good to focus on not overspending with your credit card.

Two rules are all you need

The reason these two habits are so effective is because of how credit scores work. Although there are multiple types of credit scores and scoring systems, they all heavily weigh your payment history and credit utilization.

Under the FICO® Score system, which is the most widely used by lenders, your payment history makes up 35% of your credit score. Your credit utilization accounts for another 30%, so that's 65% of your score already. The numbers are similar with the other popular credit scoring system, VantageScore.

These are also the easiest factors to focus on. For example, the next factor is your length of credit history, which is 15% of your FICO® Score. You can't do much about that. The only way to improve it is with time.

On the other hand, paying on time and keeping your credit utilization low are both good habits you can follow in your everyday life. So, if you're working on your credit, the best strategy is to keep it simple.

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