“You want to avoid things like late payments, defaults, repossessions, foreclosures, and third party collections,” says John Ulzheimer, credit expert, formerly of FICO and Equifax. “And filing bankruptcy is a horrible idea. Anything that would indicate non-performance of a liability is going to harm your credit score.”
Weigh your balances relative to your credit limit to ensure you’re not using too much available credit, a practice that can indicate risk.
Ulzheimer recommends trying to maintain a utilization rate of 10%. “The higher that ratio, the fewer points you’re going to earn in that category and your scores are absolutely going to suffer,” he says. “In fact, people who have the highest average FICO scores have a utilization of 7%.”
The date your credit card provider reports to the credit bureaus may also impact your utilization rate.
Ulzheimer points out that FICO’s scoring systems don’t differentiate between those who pay in full each month and those who carry a balance. Your utilization rate at the time your issuer reports is what’s used for your score. VantageScore, though, does consider whether you pay in full or carry your balance month to month.
If you struggle with high balances and mounting interest payments on your cards, consider consolidating with a 0% introductory rate balance transfer credit card, but make sure you know when the rate will increase and by how much.