How do I get a good credit score?

We’ve likely all seen commercials about free mobile apps or websites to check one’s credit score, making lighthearted jokes about how seriously many people take their credit scores. Further, many of our friends – black, white, old, young, tech-savvy, computer-illiterate – are probably concerned with their credit scores and how their particular score and content of related credit report can affect their “real” lives.

Per Bankrate,a credit scoreis a number ranging from 300 to 850 that closely approximates one’s perceived financial risk with respect to paying back outstanding balances – most commonly credit cards or similar lines of credit – within two years of credit score publication date.

But how do you improve your credit score to a respectable level, or at least raise it from the proverbial financial grave it might lay in? Getcha popcorn ready – but not if you have to put it on credit. Just take notes, OK?

First things first, obtain a copy of your credit report

Credit reportsare detailed, comprehensive histories of one’s financial position. They indicate whether you’re delinquent on any credit cards, lines of credit, or other financial obligations, for starters. Credit reports indicate your history of paying bills on time – or not on time – any debt you’ve accumulated and is currently outstanding at the time of report generation, places you’ve lived in the past, and other financial, residential, and personal information pertinent to making decisions about the subject’s financial situation.

Optimize your credit card utilization percentage

Although the above header probably sounds highly complicated, fixing up your credit card utilization ratio isn’t entirely difficult – as a matter of fact, it’s quite simple.

Credit card utilization refers to the proportion of used-up, outstanding balance on your credit cards in aggregate to the total of your entire portfolio’s maximum balance.

Let’s place credit card utilization percentage to life in mathematical form. First, assume someone – Jeff – has 10 active credit cards. Each of Jeff’s cards has a maximum balance of $500. Outstanding balances on Jeff’s portfolio of credit cards are as follows:

  • $100 – Card #1, 3, 7, 9, 10
  • $400 – Card #2, 4)
  • $500 – Card #5, 6, 8

If we calculate the total outstanding balance of these cards, we find a sum of $2,700.

($100 * 4) + ($400 * 2) + ($500 * 3) = $2,700

Credit card utilization percentage is calculated as follows:

[($100 * 4) + ($400 * 2) + ($500 * 3)] / ($500 * 10) = ?

==> $2,700 / $5,000 = 0.54

Or, expressed as a percentage value:

($2,700 / $5,000) * 100 = 54%

A credit card utilization percentage of 54% is far higher than the recommended maximum of 30%. Any value in excess of 30%, just like Jeff’s, will lower their owner’s credit score.

It doesn’t matter which cards Jeff pays off, as long as they don’t exceed $1,500. It’s important to remember that if you’re trying to lower your credit card utilization percentage,neverclose out a credit card completely. Doing so would increase utilization percentage.