The basics of building credit are simple: use credit, pay it off on time. Rinse and repeat.
However, while on-time payments are the most important factor to your FICO credit score, payment history only makes up 35% of it. That means that there’s still another 65% of your credit score that’s influenced by other behaviors, such as how much debt you have, how much credit you can access and what kind, recent credit inquiries, and a number of other factors.
The exact method for calculating credit scores isn’t even published. Because of that, there are a lot of credit myths that can hurt your score, and even the most financially savvy sometimes make mistakes. Here are some of the top credit score mistakes you may be making.
1. You’re too wary of debt.
Most of us either had a parent who told us that credit cards were only for emergencies, or we were that parent. While that may be a good strategy for a teenager who hasn’t quite learned the consequences of credit card debt, it’s not the best motto to live by if you’re an adult capable of exercising responsible spending habits.
When it comes to credit scores, there’s a little bit of a use it or lose it factor. Having access to credit but never using it won’t help your score.
A good rule of thumb is to put all your regular, necessary purchases, such as gas, food, and possibly bills, on your credit card and then pay it off in full each month. Then, only make luxury or unnecessary purchases with money you have in the bank to avoid racking up unmanageable debt.
It’s also wise to have more than one credit card, as it shows banks that you’re capable of juggling multiple payment deadlines.