The holidays can be financially stressful. In this post, I will share three baby steps to help keep your credit score shining brightly in the year-end hustle and bustle.

Because a high credit score makes you more appealing to lenders, it can help save you thousands of dollars over a lifetime in lower interest charges. So investing a bit of time improving your credit score can have a substantial payback. 

Here’s the good news. 80% of your credit score is driven by just three factors. Here are the steps to make the biggest impact on your credit score:

  1. [35% of your credit score] Make payments on time
    In terms of what specific steps you can take to improve your payment history, I’m a big fan of using modern technology to set up auto-bill pay or alerts so you don’t forget to make payments on time. Remember: on time is good; late is VERY bad. 
  2. [30% of your credit score] Chip away at your debt
    In terms of reducing what’s called your “credit utilization ratio” (the amount you owe relative to your total outstanding credit limits) your best bet is to try and add an extra $25, $50 or whatever you can afford to your minimum monthly payment to accelerate the pay-down of your principal. I like to see the payments go to your highest interest debt. But if paying off your smallest debt first makes you feel more motivated, do that. Don’t forget – less is more on those plastic cards.
  3. [15% of your credit score] Keep your oldest credit account
    Lenders pay attention to the length of your credit history, so as you do any year-end financial house cleaning, make sure you think twice before closing your oldest credit card. Longer is better.

In case you are wondering, the remaining factors influencing your credit score are: 

  • 10% from types of credit used – the more variety, the better (this shows you can handle various types of debt ranging from mortgages to revolving loans)
  • 10% from how often you are applying for new credit (less is better)

One last thing. What about student loans?

This is an area of debt management that far too many hard-working folks struggle with. As of 2012, the percent of consumers with a student loan on their credit report stands at 54%, with an average outstanding balance of $26,529. Consequently, a common question for financial experts from student loan holders is whether student loan debt will hurt their credit scores more than other types of debt.

The answer is no. Credit scores treat student loan debt just like any other installment debt (and make no distinction between federal and private loans). Credit card debt (aka revolving debt) actually has more of a negative impact.

The “80/20 rule” suggests that, for most activities in life, you can get 80% of the benefit by focusing on 20% of the inputs. In plain English, some actions matter more than others. This is true for credit scores, too. Focus on the three high impact items above, and you’ll be on your way to improved financial well-being for the New Year.