As long as I pay my bills on time every month I should have high credit scores, right?

By September 23, 2010Ask a Credit Expert

When we were in the dark about credit and credit scores (just 15+ years ago), someone would have told you YES.  However, now that it is almost 2011 we have some more light on the subject and know that just paying our bills on time every month does NOT give us a high credit score.  It helps our credit scores, but it is not the only factor.  There is a balance to having an optimal credit score, one that takes work.   Credit scores are calculated by an algorithm created by Fair Isaac Company to rate consumers on how much of a risk they are when it comes to paying back borrowed money.  Although we have not gained access to the algorithm we have gained some insight into the categories that make up the credit score and how some things can affect our scores.

Our credit scores are broken up into 5 categories: Payment History (35%), Amounts Owed (30%), Length of Credit History (15%), New Credit (10%), and Types of Credit in Use (10%). Making your monthly payments on time is a big part of your credit score (35% to be exact), but it is not everything.  It is important to: keep a good balance of the types of accounts that you have, keep your accounts in good standing as long as you can – the older the accounts the better, keep your balances paid off each month or keep the balances under 50% of the line of credit, if possible.

If you are going to be applying for credit soon, make sure you don’t open any new accounts right before because that can make your credit scores drop.  You also don’t want to pay off your cards and then start closing them out, this shortens your Length of Credit History and will actually make your credit scores go down as well.

Reaching and maintaining a high credit score takes work and understanding of credit.  But you are not alone. Ovation Credit Services is always here to answer your questions and help you achieve your credit goals!

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