7 Tips to Raise Your Credit Score
- October 22, 2014
- Posted by: Dave Rathmanner
- Category: Credit Scores
There's no “6-Minute Abs” for boosting your credit – by raising your credit score “now,” we mean helpful strategies you can adopt to regularly and consistently increase your score.
Getting perfect credit isn't as simple as swiping that little piece of plastic and watching a number tick up to 800. Proper debt management requires patience and diligence if you want to make your credit score work for you – and not the other way around.
Monitor your balance
“Ignorance is bliss” couldn't be further from the truth in terms of your credit score. What you don't know absolutely can and will hurt you.
One of the biggest ways to increase your credit score is by under-utilizing your available credit limit – no higher than 30%, but ideally 10%. Meaning, if your card has a limit of $1000, keep the total balance lower than $300.
Even if you pay off the entire balance every month, routinely maxing out your cards can indicate poor spending habits to the credit bureaus.
A good way around the balance threshold is to pay bills more than once per month, or preferably ASAP after making a charge to your card. Paying down the balance every week will prevent a red flag from going off from maxing out your account, even if you are capable of paying it off.
Stay on top of your credit score
Use AnnualCreditReport.com to check your credit report for free. Each bureau is required to give you one on the house every 12 months, so you could feasibly request a report from Equifax in December, TransUnion in April, and Experian in August for year-long monitoring.
Having a ballpark idea of your score is useful when applying for loans, but that's not the only benefit of periodically checking. Everyone makes mistakes, and that includes your credit card company and credit bureaus. It's a lot easier to catch and correct mistakes in your credit reports by adopting a proactive attitude, especially since it could mean a huge difference in your score.
Increase and check your credit limits
Another good way to keep an ideal credit-utilization ratio on your cards is by increasing your monthly credit limits. When jumping to a larger balance (and larger responsibility), it's important to increase your spending relative to your new limits – it's not a free pass to max out.
Afterwards, follow up with the major credit bureaus to make sure the new limit was reported by your card issuer. If you've increased your monthly balance but the bureaus still see the old credit limit, that could chip away at your score.
Consistently pay your bills on time
This is so simple and often overlooked. Missing a payment won't completely tank your credit score, but it's important to be seen as reliable. Making monthly credit card payments is key to building and maintaining a strong score.
Even suddenly charging much more money than usual can raise questions with creditors. They may think your spending habits have changed, meaning more risk for them.
Besides directly boosting your score, being a reliable credit user communicates to your credit card issuer that you can be trusted. If you've been a longtime CapitalOne cardholder and forgot to make a payment this month, give them a call. You might be surprised when they offer to expunge the record and the fee from your account.
Don't close out old cards or erase good debt
To stay streamlined and current, you might feel the urge to close out some of your credit cards. First of all, make sure that you're only using a couple cards with good interest rates for your purchases. It looks bad to have five accounts, each with a $30 balance.
Once you've paid off the balances, don't rush to cancel those other cards. Doing so will lower your total credit limit, influencing the credit-utilization ratio on your main cards. Out of sight, out of mind. Keep the accounts open with a balance of zero to reap the benefits with no drawbacks.
Also, there's no rush to erase debt from your credit report. For example, a car loan you paid off four years ago and never made a late payment on is nothing but a boon for your score. It shows you can be trusted with a large amount of debt, and creditors can rely on you to pay it back.
Be quick when shopping for new loans
Home, car, and student loans all cause a small drop in your credit score, because it means you are suddenly taking on a large amount of debt. Credit scoring formulas typically take into account that you will be making multiple applications but only taking out a single loan – this means your score won't take a hit every time you apply with a different lender.
Depending on the formula being used, this “grace period” can last for as little as 14 to as many as 45 days. Don't drag out the application process longer than necessary, just to be on the safe side.
Rebuild your bad credit carefully
If your score isn't ideal, traditional credit cards might be out of the question. Apply for a secured credit card, which is basically prepaid to prevent you from going over your limits and into debt. Not every secured card reports to all three national credit bureaus, so do your research before you choose.
Another option is to become an authorized user of an existing credit card account. This entails asking friends or family to help you out, so be responsible and considerate when making payments, or else you won't be the only one stuck with bad credit.