The must-know graph for credit scores

The chart from FICO, the company that provides the most widely used credit scores, says it all:

That is it, folks. To achieve a high FICO credit score, we only need to improve these 5 components. In order of importance, here are the 5 things we should do to increase our FICO scores:

1. Pay your credit cards and car/student loan bills on time

2. Let credit cards report small or zero balances, and pay off student/car loans as quickly as possible

3. Let credit cards age, i.e. don’t close cards that don’t charge maintenance fees

4. Avoid applying for new credit cards/loans if you don’t need them

5. Get one or several credit cards if you don’t already have one

My goal is to have a healthy FICO score when I need to apply for a credit product such as an auto loan or a mortgage. How am I doing on these instructions?

1. Pay your credit cards and car/student loan bills on time – CHECK

2. Let credit cards report small or zero balances, and pay off student/car loans as quickly as possible – CHECK

3. Let credit cards age, i.e. don’t close cards that don’t charge maintenance fees – CHECK

4. Avoid applying for new credit cards/loans if you don’t need them – CHECK

5. Get one or several credit cards if you don’t already have one – CHECK

I know I’m in good shape credit-wise. My next credit plan is to buy a car in the next few months, so I will maximize my score to get the most favorable loan rate possible. I will maintain my current credit cards, not apply for new credit, and plan my credit card usage so that by the time I apply for the car loan I will have all but one of my cards report zero balances, and keep overall utilization ratio between 0% and 1%.

I’m keeping this post short to focus your attention on the graph. It’s the most important image you’ll need on your credit quest.