3 simple keys to great credit

If you're aiming for perfection, yes, there are quirks. For most of us, it's pretty easy

Matt About Money with Matt Schulz

Matt Schulz has done thousands of interviews about money in his time as Senior Industry Analyst at CreditCards.com. He's been in The Wall Street Journal, New York Times and USA Today. He has appeared on Good Morning America, CBS Evening News, Fox Business Network and CNBC as well as hundreds of local TV and radio affiliates throughout the nation. Over the years of doing these interviews, he's seen many questions pop up over and over again - questions that impact nearly all Americans.

In this space, Matt will address these questions to help Americans get a better feel for how to find the right credit card, get it and use it the right way every day because he believes – and is living proof – that the right credit card can change your life.

Crummy credit can cost you thousands of dollars throughout your life in the form of higher interest rates on mortgages, car loans, credit cards and more. Bad credit also keeps you from getting those credit cards with all the best perks and rewards.

Unfortunately, many Americans won’t ever be able to get that right card because their credit scores aren't up to par.

The truth is that those awesome sign-up bonuses and perks that make the headlines – the ones that allow you to travel the world for almost nothing and give you access to fancy lounges and exclusive events – mostly go to folks with good to great credit. Sure, you can get rewards cards if your credit isn’t amazing, but if you want the keys to the kingdom when it comes to great credit card rewards, you need really good credit.

That’s a scary thought for many folks. To them, credit is this bizarre, unknowable beast, like something out of “Stranger Things,” the Netflix hit series where all kinds of paranormal, extraordinary things happen. However, you don’t need Eleven to protect you in this case.

Believe it or not, building a solid credit score is actually far simpler than you might imagine.

If you’re aiming for a perfect score, there are myriad quirks, nuances and details you need to know. But for the rest of us, building a good credit history basically comes down to three things – and none of them are that strange:

1. Paying your bill on time every time

This one is absolutely non-negotiable. The most important factor in any credit scoring formula is your history of paying your bills on time.

That’s because the ultimate goal of these formulas is to be able to predict whether it is risky to lend you money. The banks don’t want to lend money to someone who isn’t going to pay them back, so they rely heavily on these formulas to help them decide.

  • Miss one payment by just 30 days and your credit score can fall by 100 points. 
  • Sign-up bonus chasers, in particular, should remember this.

Those bonuses are great but if having too many credit cards in your wallet makes it hard for you to keep track of your bills and cause you to miss payments, you should probably say stick to just one or two cards.


Tip: Set up autopay for your credit card bill.

Once you’ve done that, late payments should become a thing of the past.

2. Keeping your balances low

This is the second most important factor in credit scoring. Again, banks want to know if you’ll be able to pay back what they lend you, so it makes sense they would be nervous to give you money if you already hold a lot of debt.

In short, the more you owe, the more likely you are to struggle to pay it back.

It’s not just about how much you owe, however. It’s about percentages, too. The key percentage is called the credit utilization ratio: how much debt you have compared to how much available credit. Your credit utilization is measured by how much you owe in relation to your credit limit across not just one card, but also across all your cards.

  • If you owe $5,000 and have $10,000 in available credit, your credit utilization is 50 percent. 
  • The rate is the same as if you owe just $500 and have just $1,000 in credit.

The long-held rule of thumb is you should keep that rate at 30 percent or lower in order to have a good credit score.

In reality, however, your best move is to make it as low as you possibly can.

  • Don’t get comfortable if it’s at 30 percent.
  • Aim for 10 percent – or better yet, zero.

Tip: Paying your balances down is the best way to improve utilization, but it’s not the only way. You can also improve your utilization by opening a new card and adding more available credit. That can have a positive impact on your score. Just be sure that you don’t see that extra credit as an excuse to run up more debt.

3. Not applying for too much credit too often

Whether you’re dating, job hunting or applying for a loan, desperation can scare off people, and that’s how you appear to lenders if you try to borrow too much too often.

Making a mistake here won’t devastate your credit to the degree that missing a payment or maxing out a credit card would, but there’s no question that it can raise red flags with lenders.

Again, banks want to lend to those who can pay them back. If you apply for too many credit cards or loans too quickly, banks may shy away for fear of you using all of that credit and not repaying them.

  • When card hunting, don’t apply for a bunch of cards at once and hope one comes through.
  • Pick your favorite, apply for it and then go from there.

Tip:  Spread your credit applications out throughout the year. Rewards junkies and sign-up bonus chasers get multiple cards each year. However, spacing out your credit card applications is best when trying to build a great credit score. Consider, for example, applying for a card every quarter rather than four cards at once.

That’s really it. If you do those three things throughout your life – lather, rinse, repeat – your credit is going to be just fine. Your credit will be good enough to get you those sweet travel rewards cards that can turn into free plane flights to Hawaii. It won’t happen immediately, of course, but it will happen.

By the way, these rules apply whether you’ve got crummy credit and are trying to dig out, or you’ve got pretty good credit and are trying to take it to the next level.

See related: 7 building blocks of good credit, Credit building tips you thought were wise, but simply aren't

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Updated: 03-22-2018