5 Tips for Managing Credit and Boosting Your Score

5 Tips for Managing Credit and Boosting Your Score Credit is complicated. For many, understanding how a credit score is calculated and what the number actually means is often a mystery. But it's critically important and can open doors to many things: a home or auto loan, a credit card or even a job.



Bank of America has recently partnered with nonprofit education leader Khan Academy to create BetterMoneyHabits.com, a free online resource that offers easily digestible information to help people achieve their financial goals. We've received thousands of requests from users asking us for certain types of content. As credit is one of the topics least understood and most asked-for, we wanted to share a few helpful hints on how to crack the credit score code:



1. Know the score and how it's tallied. The FICO® Score is the most widely used credit bureau score in the U.S. and ranks individuals on a scale of 300 to 850. According to myfico.com, a score of 680 or higher would generally be considered good, and the national average hovers around 692. The two most important factors affecting your credit score are payment history - the presence or absence of negative information such as a late payment - and debt burden, which is based on things such as your personal debt-to-limit ratio and the number of accounts with outstanding balances in your name. Other factors include the length of credit history and credit utilization.



2. Pay your bills on time. Your payment history is very important to your credit, making up 35 percent of your overall score. So, the best thing you can do to achieve a high score is to pay your bills on time every month, including loans, utilities, credit cards and mortgage payments. Timely bill payment shows potential lenders that you're financially responsible. Setting payment reminders on your accounts can be very helpful so you don't forget to make a payment on time.



Pay your credit card balance in full to avoid additional interest, but if you're unable to do that, pay at least the minimum amount to keep the account active. Keep in mind, however, that credit card balances that remain after the grace period accrue interest and add to your overall debt.



3. Establish your credit. In order to have a good credit score, you need to build up your credit. While this may sound intimidating, start with the basics. For instance, opening a checking or savings account allows you to establish a relationship with a bank so they can see you are responsible in managing your money. If you don't already have a credit card, you may consider applying for one. If you are just starting out, you might want to consider a secured card, which requires a cash collateral deposit that establishes the line of credit for the account. You can watch this video for more tips on building credit from scratch.



4. Keep an eye on your credit. Each year, every person is eligible for a free credit report from one of the three major credit reporting agencies (Experian, Transunion and Equifax) through Annualcreditreport.com. Your credit report summarizes information about your accounts, and it's the only place where you can see the full picture of all your previous and current credit activity. Regularly checking your credit report is also the best way to monitor for the possibility of unauthorized accounts opened in your name.



5. Keep credit utilization low. Credit card utilization is the ratio of how much credit you're using compared to how much credit you have available. For instance, if you have a $6,000 credit limit and your balance is $1,500, then your credit utilization ratio is 25 percent (1,500/6,000 = 0.25). People who keep their credit utilization ratio between 10 and 30 percent tend to have the highest credit scores, according to CreditKarma.com. If the amount you owe is more than 30 percent of your available credit limit, it may have a negative impact on your credit, as this video explains.



For a reminder of these tips and more, download an overview of how to boost your credit score. For more in-depth information, watch this video on building credit and keeping yours healthy.



Video presented by Better Money Habits







The material provided on the video is for informational use only and is not intended for financial or investment advice. Bank of America and/or its partners assume no liability for any loss or damages resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management.

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