I deal with credit all day. I work as a fleet manager at a large auto dealership, and I have viewed over 10,000 credit bureaus over the last 10 years.
Stomie has given you a lot of good advice.
My advice is this:
1)Do your own research on attaining and maintaining a high credit score, and get your information from a credible source.
2)Don't take anyone's advice regarding credit reports without their advice being substantiated by one of the credit bureaus. Check the website for Experian.com, Transunion.com, Equifax.com. These are the 3 major bureaus and they can give you credible advice.
3)My experience, and check even what I say with one of the credit bureau sites, or an expert in the subject tells me that high balances relative to your credit limits result in a low credit score, even if you pay all your bills on time.
Here are some general rules and observations I have noticed over 10 years and 5,000 or more viewings of credit bureaus:
Nothing wrecks credit faster than late pays (30 days late or more), collections and charge-offs.
High credit limits won't hurt that much, if at all. High balances will. In other words, keep your balances low, preferably below 10% of your available credit limit overall.
Closing your accounts will hurt your credit in the short run because you know have a higher debt to availability ratio. Your liability (debts) is high relative to your available credit.
Here is some more info:
Key factors of your score
Just what goes into the score? Everything in your credit report, with different kinds of information carrying differing weights, says Fair Isaac Corp. Public Affairs Manager Craig Watts. The FICO-scoring model looks at more than 20 factors in five categories. (The VantageScore relies on slightly different factors. The Bankrate feature "New Vantage credit score now online" compares the FICO score with VantageScore. )
1. How you pay your bills (35 percent of the score)
The most important factor is how you've paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is worst.
2. Amount of money you owe and the amount of available credit (30 percent)
The second most important area is your outstanding debt -- how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each have $10,000 credit limits, that's $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk
"Carrying a lot of debt doesn't necessarily mean you'll have a lower score," Watts says. "It doesn't hurt as much as carrying close to the maximum. People who consistently max out their balances are perceived as riskier. People who never use their credit don't have a track history. People with the highest scores use credit sparingly and keep their balances low."
3. Length of credit history (15 percent)
The third factor is the length of your credit history. The longer you've had credit -- particularly if it's with the same credit issuers -- the more points you get.
4. Mix of credit (10 percent)
The best scores will have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. "Statistically, consumers with a richer variety of experiences are better credit risks," Watts says. "They know how to handle money."
5. New credit applications (10 percent)
The final category is your interest in new credit -- how many credit applications you're filling out. The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score, Watts says, is when you have previous recent credit stumbles, such as late payments or bills sent to collections.
"Then, looking for new credit will be seen as an alarm because statistically, before people declare bankruptcy and default on everything, they look for a life preserver," Watts says. Also, if you have a very young credit file, an inquiry can count for more than if you've had credit for a long time.
What doesn't count in a score
The scoring model doesn't look at:
age
race
sex
job or length of employment at your job
income
education
marital status
whether you've been turned down for credit
length of time at your current address
whether you own a home or rent
information not contained in your credit report
A lender may consider all those factors when deciding whether to approve a loan application, but they aren't part of how a FICO score is calculated, Watts says.
Credit scores are not perfect
The major drawback to credit scoring is that it relies on information in your credit report, which is quite likely to contain errors. That's why it's critical that you check your credit reports annually, or at the very least three to six months before planning to buy a house or a car. That will give you sufficient time to correct any errors before a lender pulls your score.
Watts says that the need for accuracy in credit files is one reason why it's good for consumers to learn about credit scores.
"There's a hope that as consumers know about credit reports and scores, they'll do more to correct errors and provide more oversight," he says. "If consumers can police the accuracy of their own reports, everybody gains."
Want to get an approximation of your score? Bankrate and FICO have teamed up to create the free FICO Score Estimator.
Perfect credit score: Unrealistic and unnecessary
By Dana Dratch • Bankrate.com
You're one of the lucky ones in the financial pecking order: Your credit score is high. Really high. But what if you want perfection?
Get a hobby.
Having a high score is great. But the slight difference between very high and perfection just won't make a difference in your everyday life.
A credit score is your credit history at one point in time, reduced to a single number. One of the most popular credit-scoring models, the FICO score, can range from 300 (very bad) to 850 (solid gold). But don't expect to see many 850s walking around.
"It's very rare to be there," says Maxine Sweet, vice president of public education with Experian, one of the three major credit bureaus. "I've never seen it."
While it's theoretically possible to score 850, most high scores top off at about 825, Sweet says. "You can't get much higher," she says.
From a practical standpoint, that's just as well, several credit experts say.
"There is no reason to go from 775 to 850, because you're still going to get the same rate," says Linda Sherry, spokeswoman for Consumer Action, a Washington, D.C.-based advocacy group.
For those not hitting the high 700s and above, there's room for improvement.
Tips for improving an already good credit score
If your credit score is high and you still want to nudge it up a few more points, try these six tricks of the trade:
1. Use credit sparingly.
2. Use a small fraction of your available credit.
3. Don't carry a wallet full of cards.
4. Make every payment on time.
5. View credit as a safety net.
6. Look at your credit report.
1. Use credit sparingly.
Even if you pay off your balances every month, you may show a balance on the day your history is pulled for a loan, says Craig Watts, public affairs manager with Fair Isaac Corp., the company that pioneered credit scoring and developed the FICO score. Creditors like to see consumers using credit judiciously so that they know consumers will have no problems paying, he says.
2. Use a small fraction of your available credit.
Credit scoring will examine how much of your available credit you're using and penalize you if the percentage is too high.
The ideal? "As close to zero as you can get," Watts says.
The limit that credits want to see is anywhere from 25 percent to 35 percent, depending on the formula (and who you ask).
"A balance above 50 percent really begins to hurt you," says Steven Katz, spokesman for TransUnion.
So, keep it at 25 percent to be on the safe side. And if you're shooting for that super-premium score, just remember: the lower, the better.
In years past, credit counselors used to tell consumers to close accounts that they weren't using, especially if they were getting ready to apply for a mortgage or car loan. The reason was that it was believed that lenders were leery of people who could go out at any time and max out their credit and add a large pile of debt to their obligations.