Creditors have gotten much more conservative in response to the problems in the financial markets. It’s now more important than ever to do everything possible to maintain the highest credit score you can. Creditors are looking for any excuse to restrict a consumer’s access to credit or to increase the consumer’s cost for credit.

Simply paying all your bills on time may not be enough to maintain an excellent credit score. Yes, timely payments have the largest impact on your credit score (roughly 35%). There is more you should do, especially in this credit environment.

The second most important component of your score is credit utilization and it’s here where you have ability to increase you score even more.

This is going to be the focus of today’s Personal Financial Tip. Credit utilization is an analysis of the amount of credit you have available and how much of that credit is actually outstanding. Credit utilization contributes 30% to your score, making it something that shouldn’t be ignored.

Credit falls into 2 general categories. There is installment debt, such as a mortgage, car loan, student loan, etc. The second category is revolving credit. Here you are granted a credit limit and you have the flexibility to borrower up to that limit without asking the lender’s permission or applying for additional credit.

They only thing you can do with installment debt is to pay it on time. There is nothing you can do here to help your credit score, except to comply with the terms of the loan documents. You do have the ability to lower your score, by not paying on time but there is nothing you can do here to increase your score.

The way you use revolving credit is reflected in your score. You can substantially improve your credit score by doing some very simple things. Before we can address what you can to do, we need to understand what aspects of credit utilization the analysis is looking at.

The general components that are used in the analysis are:

The length of time the accounts have been opened

The number of accounts that are active

The overall percentage of the available credit that’s being utilized

The percentage of the available credit on each card that’s being utilized

Not having the ability to go back in time, there is no way you increase the length of time you’ve had an account opened. The one thing you can do is resist the urge to close inactive accounts. By closing an old account that you no longer use actually works against you. You are shortening your credit history.

My first piece of advice is to never close accounts simply because you are no longer using them. If you’re afraid of the “temptation” of keeping too many accounts open, then either destroy the physical card, not the account, or lock the cards away somewhere.

If you only have one or two credit cards, you should consider opening another one or two. This helps out in a couple of ways. It not only increases the number of accounts in your credit profile but also increases the available amount of credit you have.

Let’s say you have one credit card with a credit limit of $5,000 and you are carrying a balance of $2,500. You are using 50% of you available credit. If you open a second card with a $5,000 limit and carry a zero balance on it you are now utilizing only 25% of your available credit. This improvement in the credit utilization will reflect in a higher credit score as time passes. It won’t help immediately, but you will see a steady increase in your credit score as the months go on.

You can now go one step further and move $2,500 off of the original credit card and onto the new card. Now not only have you improved your overall percentage of credit use you’ve also improved the individual percentage on the original card, again contributing to a better score.

Don’t use credit cards? It definitely is a great feeling having no credit card debt and you should be proud of your success in exercising self-control over your spending habits. My suggestion in this case, though, is to use credit cards to make your purchases and pay the outstanding balance in full when the bill comes. You will incur no finance charges by doing this so there is no cost involved. This does, however supply data to your credit profile. This gives the program that generates your score, something to work with. It’s all positive information; balances appearing and being paid off on an ongoing basis, generating a higher credit score than having no activity.

By being proactive with your credit profile you can be confident that credit will be available to you when you want it and at the best possible cost.