Advertiser Disclosure

Your Credit: Be the Tortoise, Not the Hare

June 6, 2014
Credit Cards
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.

We all know the fable: Despite its quick speed, the hare couldn’t beat the slow but steady tortoise in a race. Slow and steady is often the way to get things done right, and it’s certainly true when it comes to establishing and building your credit.

What makes up your credit score?

First, here’s what you need to know about credit scoring. Your credit score is made up of these five factors (listed in order of importance):

    Payment history (35%): Do you make your payments on time, every time?

    Credit utilization (30%): What percentage of your available credit are you using? The goal should be less than 30% utilization, meaning if your limit is $10,000, your balance should be less than $3,000.

    Length of credit history (15%): How long has your average credit account been open? This is definitely an area where the tortoise will shine!

    Types of credit in use (10%): What mix of credit accounts do you have? Ideally, you’ll have more than one credit account type, although this isn’t a super-important factor.

    New credit (10%): Have you applied for new credit lately? It will probably pull down your score a little.

For purposes of this example, let’s assume you’re building credit for the first time. But keep in mind that if you’re trying to build your credit after making financial mistakes, the same principles stand — slow and steady wins the race.

The hare is cocky, but not careful

Patience may be a virtue, but no one wants to wait for anything. This is America — land of the free, home of the brave, as well as the impatient. We want our food, money and results right now. But sometimes it’s best to take the slower, more effective route.

Let’s take the hare, the speedy racer who taunts the tortoise for his slow pace. The hare is ferociously applying for many different types of credit to get a good credit mix in a short period of time. He knows making on-time payments is important, but he’s stretching himself too thin. He only makes the minimum payments and utilizes too much of his available credit.

So our hare is making payments on time, but hurting himself when it comes to credit utilization, length of credit history and new credit. If he isn’t careful, soon he may be saddled with the average household credit card debt of $15,191 — as of April 2014.

The hare races to build credit and then coasts, only to find out later that his tortoise counterpart is building credit more effectively with a slow and steady approach. But you aren’t going to be the hare. You’re going to take your time and be the tortoise.

The tortoise may be slow, but he’s intentional

The tortoise starts by applying for one credit card. He only uses it when he has the cash to pay it off, and does so in full each month. He always makes payments on time.

The tortoise also chooses to space out his credit applications, at least at first. After all, new credit applications can hurt two factors — the length of credit history and new credit. And while it may be tempting to diversify credit accounts right now, the more new accounts you apply for — especially when you’re just starting out with credit — the more it hurts your score.

Being the hare — the quick, overly confident opponent — sounds much cooler than being the tortoise, the slow, patient one. However, you’ll put yourself in a much better position by adopting the tortoise’s steady approach. Accept that you have to build your credit slowly and you’ll reap the benefits of a great credit score in the future.

And that’s the moral of the story.

Tortoise and hare image via Shutterstock