MINNEAPOLIS (WCCO) — Experts admit that credit scores are more important than ever.

Scores are used to determine credit worthiness for a loan. Landlords could use it to determine if you are going to pay your rent, and employers may use your credit score to decide how responsible you seem.

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People swipe credit cards and insert the chip for purchases multiple times a day. How you use your credit card is critical to having a good credit score, according to Darryl Dahlheimer, program director for Lutheran Social Services Financial Counseling Services.

“The right formula is to get a credit card and to use it well,” Dahlheimer said.

But what does that mean? A FICO score is broken down into five parts:

  • 35 percent = payment history
  • 30 percent = amount owed
  • 15 percent = length of credit history
  • 10 percent = new credit
  • 10 percent = mix of credit

“We say there’s five factors that FICO lists to build their credit score and how they give you points,” Dahlheimer said. “But the two of them that are gigantic like lungs on the body are paying on time and … using it for less than full credit limit.”

He says opening a card or closing a card have a minor effect on a credit score. It is imperative to pay your bill on time. That is your payment history. The next piece is to spend less than 30 percent of your credit limit.

“So if you have a $10,000 card limit, you never want to go over $3,000. If you have a $500 credit limit, you never want to go over $150,” Dahlheimer said.

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Avoid maxing it out, even if you want to gain points or airline miles.

“The credit card lenders like to see that you’re walking safely away from the cliff’s edge, and they don’t like even if you never go over the cliff, they don’t like you being on the guard rail,” Dahlheimer said.

If you are trying to build credit, Dahlheimer recommends doing it at no cost. So apply for a credit card with no annual fee.

“One or two cards, no better or worse than three to four cards. It’s just fine. Just don’t go nuts with 10 cards,” Dahlheimer said.

Bottom line: use a credit card, stay well below the limit and pay it off on time.

Consumers can check their FICO score for free once a year. Dahlheimer suggests doing that to look for mistakes.

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Click here to learn more about LSS Financial Counseling.

Jennifer Mayerle