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Expert: 'The best thing any cardholder can do to move their credit score from good to great'

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In response to the economic fallout from the coronavirus pandemic, many mortgage lenders are increasing their credit score requirements for mortgage applicants in an effort to protect themselves and borrowers from defaulting. JPMorgan Chase, one of the nation's largest lenders, released new guidelines in April stating that new mortgage applicants will need a minimum FICO credit score of 700, which FICO defines as a "good" score. 

Whether you've seen your finances take a hit from the coronavirus or not, having a "good" credit score — or, even better, a "great" one — can also help you save thousands of dollars on auto loans, private student loans, mortgages, and even credit card interest rates

Taking preemptive measures, such as checking your credit report to make sure there aren't any errors, can help you make sure your credit score stays strong or even improves. "In the wake of the pandemic, it might be necessary to play a little defense to protect your credit," says Matt Schulz, chief credit analyst at LendingTree. 

To get great credit, which Experian defines as a score of 800 or higher, these are the most important things you can do, according to experts. 

1. Pay your bill on time each month 

"Paying down your balance is the best thing any cardholder can do to move their credit score from 'good' to 'great,'" says Schulz. 

The three major credit bureaus (Experian, Equifax, and TransUnion) take a number of factors into account when calculating your credit score. But your payment history is the biggest factor, accounting for 35% of your FICO score, says Ted Rossman, industry analyst at Bankrate. So it's important to pay on time every month.

"Credit scoring is all about how well you manage your money, not how much money you have," he says.

In addition to paying your bill on time, managing your credit well includes "keeping your debts low and showing a long track record of managing different types of credit," Rossman says. 

Even in robust economic times, Americans struggle to pay off their debts, says Schulz. That's become even more of an issue during the pandemic, as many people rely on credit to pay for essentials like food and medicine. "Still, in good times or bad, any cardholders' ultimate goal should be to pay down their debts as quickly as possible," he says.

If you can't pay off your credit card in full each month, you can make sure you pay it on time by setting up automatic payments. This can help you avoid fees and penalties associated with a late payment.  

VIDEO1:5001:50
3 steps to build your credit score with Matt Schulz

Video by Ian Wolsten

2. Lower your credit card utilization rate

Building a strong credit score is a long-term pursuit, Rossman says. But there's one thing you can do to improve your score right now. "The most impactful thing that consumers can do to quickly improve their credit score is to lower their credit utilization ratio," he says. 

To calculate your credit card utilization, divide the credit you're using by your credit limit. "Ideally, your credit utilization ratio will be below 30%, and most people with the highest credit scores keep it below 10%," Rossman says.

You may not know you could benefit from bringing your credit utilization down, he says. "What most people don't realize is that you might have a high credit utilization ratio, even if you pay your credit card bills in full each month. It's typically reported as of the statement date, so even if you do something like pay $4,000 of charges (out of a $5,000 limit) before interest accrues, that 80% credit utilization ratio will hurt your score."

A great way to lower your credit card utilization is to make an extra payment during the month, so you can knock down your utilization before the statement even generates, Rossman says.

3. Play credit score defense

Both Rossman and Schulz underline the importance of paying your balance in full and on time, if you're able. While that should be your ultimate goal, that might not feasible depending on your current financial situation. 

Given that, here are three additional ways the experts suggest improving your credit score.

1. Monitor your credit report for errors 

"Errors appear on credit reports more often than people realize. Keeping good credit is challenging enough without someone else's mistakes weighing your score down unnecessarily," says Schulz. 

It's pretty common to find mistakes, says Rossman: "The FTC says about 1 in 5 Americans have errors on their credit reports."

Credit bureaus used to give consumers a free credit report once a year. Now, in light of the economic impact of the pandemic, Experian, Equifax, and TransUnion are offering free credit reports every single week.

VIDEO2:5302:53
This is how your credit score is actually measured

Video by David Fang

2. Spend on cards you haven't used in a while 

Issuers can slash your credit card spending limits and even close cards you aren't using without notice. That can reduce your available credit and therefore raise your credit utilization rate, Schulz explains.

To avoid an increased credit card utilization rate, which will hurt your score, "shift some of your regular spending on to a card you haven't used in a while. It might help keep your card from being closed or having its limits slashed," he suggests.

3. Become an authorized user on someone else's card

To boost your score quickly, ask a parent or someone close to you with good credit if they'll make you an authorized user on their card, Rossman suggests. 

"This will be most impactful if you have a thin file," he says. For example, a young adult who doesn't have much experience managing credit could benefit by becoming an authorized user on a parent's credit card. "By being listed on an account that's managed well, that will help you."

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