Which of the following is a good strategy to improve your credit score, according to financial literacy principles such as those taught in EverFi?

• A. Pay your bills on time each month.
• B. Only make the minimum payment on your debts.
• C. Max out your credit cards regularly.
• D. Open several new credit accounts at once.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a credit score: A credit score is a numerical representation of your creditworthiness, which lenders use to assess the risk of lending to you. It is influenced by factors such as payment history, credit utilization, length of credit history, types of credit, and new credit inquiries.
2. Analyze the options provided: Evaluate each option based on its impact on the factors that determine a credit score. For example, paying bills on time positively affects payment history, while maxing out credit cards negatively impacts credit utilization.
3. Focus on payment history: Payment history is one of the most significant factors in determining a credit score. Paying bills on time each month demonstrates reliability and financial responsibility, which improves your credit score.
4. Avoid behaviors that harm your credit score: Making only minimum payments, maxing out credit cards, or opening several new accounts at once can negatively impact your credit utilization ratio, increase your debt, or lead to excessive hard inquiries, all of which can lower your credit score.
5. Adopt good financial habits: To improve your credit score, consistently pay bills on time, keep your credit utilization low (preferably below 30%), and avoid opening multiple new accounts in a short period. These practices align with financial literacy principles.