3 Strategies That Could Raise Your Credit Score
Your credit score is one of the most important numbers in your financial universe. It can determine whether you get the loans you need, how much interest you’ll pay on them — and even impact your ability to rent an apartment or get a job. While building good credit takes time and patience in most cases, there are some deliberate actions you can take to help give your score a faster boost.
Three strategies in particular can help unlock your credit potential. And fortunately, they’re based on resources you most likely already have.
1. Use Your Daily Bills as a Credit-building Tool
One of the most underappreciated ways to build credit involves simply taking advantage of the payments you make every month. Services like Experian Boost and eCredable Lift allow you to add on-time utility, rent, internet service and other payments to your credit report, which can earn you recognition for responsible payment behavior that previously may have flown under the radar of credit bureaus.
It’s important to keep in mind, however, that this approach works best for those who already have a good payment record with these bills. If you’ve had late payments or inconsistent payment patterns, it may not serve you well and could even draw attention to delinquencies. Additionally, some of these credit-building services charge a fee, so be sure to weigh the cost against potential benefits.
2. Keep Your Credit Cards Open, Even if You’re Not Using Them
When you pay off or merely stop using a credit card, your first instinct might be to close the account. But this can be a mistake that could hurt your credit score in two ways.
First, closing accounts you’ve had for a long time can shorten your average credit history length, which factors into your credit score. Credit scoring systems favor applicants with longer, more established credit histories because they can show more about your reliability over time. An old account that you opened 10 years ago can still help your score — even if you haven’t used the card in years.
Second, closing accounts reduces your total amount of available credit, which increases your credit utilization ratio if you carry balances on other cards. That ratio — the amount of total available credit you’re using — is another important factor in determining your credit or FICO score.
3. Request Higher Credit Limits to Improve Your Utilization Ratio
Your credit utilization ratio is calculated by dividing your total charges on credit cards by your total credit lines. Many experts recommend maintaining a ratio below 30%, but scores are optimal when utilization is below 10%.
Requesting higher credit limits on existing cards will lower this ratio, even if you have outstanding balances. For example, with $2,000 in outstanding credit card balances and total credit available of $10,000, your utilization stands at 20%. If you can request and receive credit limit increases that raise your available credit to $15,000, your utilization drops to around 13%.
Maintaining healthy spending habits, however, is the key to making this plan work. Higher credit limits help your credit score only if you don’t give in to the temptation to spend more. Before requesting any increases, it’s important to have a clear plan for how you’ll avoid accumulating more debt. Consider setting up automatic payments or removing the cards from your wallet to reduce the temptation to make impulse purchases.
There are other ways to improve your credit. A Financial Professional can assist you in finding the right strategies for your individual situation.
Sources
https://www.myfico.com/credit-education/blog/add-rent-credit-reports
https://www.chase.com/personal/credit-cards/education/credit-score/pros-cons-closing-credit-card-account
https://www.cnbc.com/select/how-to-keep-credit-utilization-low/
https://money.usnews.com/credit-cards/articles/how-to-increase-your-credit-limit-without-harming-your-score