How to Build and Maintain a Strong Credit Score

Matt Bell

Benjamin Franklin once said, “It takes many good deeds to build a good reputation, and only one bad one to lose it.”

Financially, your reputation boils down to a three-digit number: your credit score. Each credit-related action you take is recorded, tallied, and turned into this increasingly important number.

A good credit score will help you get the best rate on a mortgage and a lot more. Insurers, cell phone providers, and a growing list of other companies base their decisions about working with you and at what rates, in part, on your credit report and/or score. More and more landlords and employers check the same information before renting you a place to live or offering you a job.

Clearly, building and maintaining a strong credit score is important.  That’s why the eighth of my 11 principles for simple, meaningful success is to Manage Your Number.

Here’s how.

Pay Your Bills on Time

Thirty-five percent of your credit score is based on your track record of paying your bills on schedule. Do all that you can to pay your bills on time.

Most credit card companies will send you an e-mail alert a week or so before your next payment is due. Sign up for these free alerts. If you are using an online budget tool such as, it will send you alerts as well.

Be Careful About How Much Credit You Use

Thirty percent of your credit score is based on how much you owe. What is especially important is how much of your available credit you are using (“credit utilization”) across all of your credit cards and on each individual card.

Using 30 percent of your available credit or less is good; 10 percent or less is ideal. This goes for people who pay their balances in full each month, not just those who carry a balance.

Give It Time

Fifteen percent of your credit score is determined by how long you have used credit.

I’m often asked in workshops whether to close old, unused accounts. This is generally not a good idea, but not because doing so will erase your credit history. When you close an account, positive information about the account stays on your report for ten years, negative information for seven years.

The problem with closing an old account has to do with credit utilization. Closing an account lowers your total available credit, which may increase your utilization, and that can lower your credit score.

Be Cautious About Opening New Accounts

The amount of credit you have applied for recently impacts 10 percent of your score. As you shop your way through the mall, opening new credit card accounts in order to get all those 10 percent discounts tends to discount your credit score.

Use Various Types of Credit

Your mix of installment loans, revolving credit, and/or a mortgage is an important part of the final 10 percent of your score. Installment loans are those with a fixed payoff period, such as a vehicle or student loan. Revolving loans are open-ended loans, such as credit cards.

Having some of each type of credit is ideal, at least according to the credit bureaus.  However, I don’t recommend taking on new loans just for the purpose of trying to improve your credit score.

Review Your Free Credit Report

Everyone is entitled to one free report each year from each of the three credit bureaus: Experian, Equifax, and TransUnion. Get your reports at Here’s what to look for in each of their major sections:

Credit summary. Toward the top of your Equifax report, under “Accounts,” you will see your credit utilization, or what it calls “Debt to Credit Ratio.” This is the area you can do something about to impact your score the most in the least amount of time.

If you have a high debt to credit ratio, you will raise your score if you can pay down your debt, especially credit card debt. The improvement should show up within thirty days.

Account information. Are there any accounts you don’t recognize? This could be a sign of identity theft. If you see such accounts, contact those creditors directly and let them know the accounts are not yours.

Check to see if there are any late payments noted. For Experian, you want your open account status listed as “Open/Never Late.” For Equifax, “Pays as Agreed.” For Transunion, “Paid or Paying as Agreed.”

If any accounts are listed otherwise, and you believe you have never been late with a payment, contact the creditor. Let them know you believe a mistake has been made and ask if they will change it on your credit file.

Personal information. Check to see that the following information is correct: the spelling of your name, your birth date, current and previous addresses, Social Security Number, and current and past employer information.

If you see any problems on your report, file a dispute. Instructions are on the report.

Buy Your Credit Score

Your credit reports are free; your credit score is not. There are some Web sites that offer free credit score estimates, but I recommend that you purchase your FICO score. FICO stands for Fair Isaac Corporation, which is the company that created the credit score and whose scores are the most widely used.

On Fair Isaac’s web site, you’ll have your choice of purchasing your TransUnion FICO score or your Equifax FICO score.  It doesn’t really matter which one you choose; just buy one for $19.95.

Credit scores range from 300 to 850. Unlike cholesterol, the higher the number the better. Ideally, you want your score to be in the mid 700s or higher.

Do the Right Thing

Credit scores have an aura of mystery.  There’s no end to the articles offering this strategy or that for increasing your score.

The truth is, there are two very basic steps everyone can take to build and maintain a good score: pay your bills on time and use a relatively small amount of your available credit.  Focusing on those two things will go a long way toward keeping your financial reputation—your credit score—strong.

What questions do you have about credit scores?

Other posts in this series on the 11 principles that lead to simple, meaningful success:

The Purpose of Money (Principle One: Know Who You Are)

How to Recession-Proof Your Career (Principle Two: Earn Diligently)

The Single Most Powerful Personal Finance Tool (Principle Three: Plan to Succeed)

An Irrational Financial Act (Principle Four: Give Some Away)

Common Questions About Biblical Generosity (a continuation of Principle Four)

Pay Yourself Second (Principle Five: Put Some Away)

The Debt Doctor Will See You Now (Principle Six: Ruthlessly Avoid Debt)

Practical Steps for Getting Out of Debt (a continuation of Principle Six)

The Essentials of Investing (Principle Seven: Patiently Pursue Interest)

Matt Bell is Associate Editor at Sound Mind Investing, publisher of the best-selling investment newsletter written from a biblical perspective.  Its core investment strategy has beaten the market in 11 of the past 13 years.  For a limited time, Sound Mind Investing is offering a 30-day free trial membership.

Publication date: August 1, 2012