Using credit wisely and knowing what will and won’t hurt your score are important factors in maintaining good credit. Making your payments on time, minimizing how much new credit you get and controlling your spending can all help to keep your FICO score high. Since a good credit score can make a difference in how much interest you pay on a loan or even whether you get the loan, a high score is to your benefit.
The Importance of Good Credit
Your credit score is important anytime you want to make a large purchase, such as a home or car, but it also represents you in other matters. Credit card companies, department stores and banks use it to evaluate your personal creditworthiness. Beyond just getting credit, your FICO score is also used by insurance companies when deciding how much of a risk you are; many employers look at your credit report and may refuse to hire you if you have a lot of debt or other credit problems.
Makeup of Your Credit Score
A credit score is made up of a number of different elements, including how much you owe, how much credit you have available, whether or not you pay your payments on time, and how long you’ve had credit. Each of these items impacts your credit score, but according to Liz Weston at MSN Money, the exact way your score is affected and the amount you’re impacted depend on multiple factors that FICO doesn’t make available to the public. In general, any negative items on your credit report will lower your credit score, while positive items and responsible behavior will raise it.
Going Over the Limit
Credit cards come with a spending limit, and this amount shows up on your credit report. One thing that’s taken into account when figuring your credit score is the amount of debt you have as compared to your available credit. Spending up to your limits means that you are using all of your available credit and probably aren’t a very good credit risk; this decreases your credit score. If you manage to go over your limit, which can happen when late fees and penalties are tacked on even if you aren’t spending, it hurts your credit even more, since it shows poor credit management skills on your part.
Dealing With Over-Limit Credit
If you have an account that’s gone over the limit, pay it back down under the limit as quickly as possible. If you’re over the limit for a long time, or if you go over often, the company may decrease your credit or even close your account, either of which will hurt your credit score. The best way to prevent having your FICO score lowered is to keep an eye on your accounts and stay well under your credit limit, pay on time every month and use credit responsibly.
- MyFICO: How to Repair Your Credit and Improve Your FICO Credit Score
- MyFICO: Know Your FICO Scores
- MyFICO: What’s in My FICO Score
- MSN Money: 5 Ways to Kill Your Credit Scores
- Experian: Going Over the Limit on Your Credit Card
- Credit Hub: Credit Utilization Guide
- Experian: The Impact on Credit Scores When You Exceed Your Credit Limit
- MSN Money: How Important Are Your Credit Scores?