Your credit score is a critical piece of your financial life.
If you want a good rewards credit card, you’ll need a good credit score. If you want to get a low mortgage interest rate, you’ll need a good credit score.
There are also other non-obvious places where a good credit score can help - like when you want to get a new cell phone or when you’re getting car insurance.
Building credit can be a long process where good behavior helps increase your score gradually. Achieving good credit can take years but there are a few steps you can take to give your score a boost.
These won’t work for everyone because many solve specific problems (that you may not have - which often what credit repair companies target) but review the list to see if you can take advantage of any of these ideas.
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1. Reduce Your Credit Utilization Ratio
Several factors determine your credit score. Your credit utilization ratio is an influential metric because it is part of a factor that makes up 30% of your score. Credit utilization is simply how much credit you are using divided by the total amount of credit you have access to.
If you charged $10,000 to your credit cards and your total credit limit is $50,000, your utilization is 20%. Credit bureaus use your statement balance in this calculation, so you have utilization even if you pay off your balances in full each month.
A general rule of thumb is to use up to a maximum of 30% of your credit card limit. Many experts suggest keeping it below 10%, if possible. Most credit cards report your credit utilization once a month to the credit bureaus. In many cases, your most recent statement balance is the number that goes onto your credit report.
Here are three ways to keep your credit card utilization ratio below 30%:
- Only charge essential purchases like gas and groceries—or those that earn bonus points
- Split your purchases between multiple credit cards
- For large one-time purchases, make extra payments during the billing cycle
If you won’t be making an extra payment each month, you can simply pay cash on purchases that would push your balance above the 30% threshold. If you’re going to make additional payments, schedule them to post before the end of the billing cycle. This way your balance on your statement is lower.
2. Request Credit Limit Increases
Periodically, request an increase to your credit limit. Each credit card company will have a different process but it’s typically very easy and very quick. Most credit cards will let you do this online.
By increasing your credit limit, you lower your utilization.
Two things to keep in mind when doing this. First, don’t request an increase on a new card. Many companies will not increase your limit if it’s new.
Next, when you request an increase, you want to make sure you do it in a way that doesn’t require a hard inquiry on your credit report. If you request a relatively small increase, the company will usually approve it automatically.
If you ever request an increase and the company wants to ask for more information, decline the request. You don’t need the increase and so it doesn’t make sense to take the credit score decrease from a hard inquiry.
You can usually request an increase every six months.
3. Fix Credit Report Errors
Sometimes, banks make reporting errors that hurt your credit score. Even if you haven’t missed a payment, many consumers overlook the benefits of a periodic credit report review.
Reviewing your credit report is free and only takes a few minutes. You can request free credit reports from Equifax
If you find an error, you will need to file a dispute with the credit bureau. No error is too small to dispute. I’ve disputed incorrect phone numbers, which are correctly in minutes, which led me to discover unauthorized accounts (a cell phone).
If the error affected your score, you should see a pretty quick change once the credit bureau corrects the error.
4. Be an Authorized User on a Credit Card
Having a family member with a higher credit score than yours can add you to their credit card as an authorized user. Doing so can positively affect your credit score when the card has a long account history, on-time payments and a low credit utilization ratio.
5. Periodically Use “Dormant” Credit Cards
As your credit history grows, you likely qualify for credit cards with better rewards and interest rates. Instead of closing your first credit card, make occasional purchases to keep it active.
When you keep the card active, banks are less likely to reduce your credit limit or close the card. The credit bureaus look at each revolving credit account's credit utilization ratio as well as your overall credit utilization ratio.
A credit line decrease impacts your total credit utilization ratio.
Closing an old credit card account can also hurt your score. If your old card charges an annual fee, see if you can downgrade it to one without an annual fee. You maintain your account history and that continues to strengthen your credit.
6. Pay Off Cards with the Highest Balances First
In addition to limiting your future spending, work on paying off your credit cards. If you have several cards with a balance, focus on the highest card balance to reduce your credit utilization ratio.
Paying down your outstanding debt can also improve your debt-to-income ratio, which is not a factor in your credits core but is used by many lenders.
7. Make On-Time Payments
If you miss your payment due dates, stop.
Your payment history is the most influential credit score factor with a 35% weighting. Even if you can only make the minimum payment, your account remains in good standing—and you avoid late fees.
8. Have a Variety of Credit Accounts
While you should only borrow money when necessary, having a variety of credit accounts can demonstrate you can manage credit responsibly. You might have one credit card, a home mortgage and a car loan. Each type of account can benefit your credit score differently.
Loans that you repay in full can remain on your credit report for up to ten years. You can have an easier time qualifying for a similar loan in addition to having a higher credit score.
9. Sign Up for a Credit Boost Service
Having a credit card and installment loans are not the only ways to increase your score. Credit boost services like Experian Boost report your monthly bill payments like utilities or your cell phone plan to the credit bureaus. You can receive credit by linking your bank account.
10. Get a Credit Builder Loan
Credit builder loans can offer a small credit score boost as you lend money to yourself. You make monthly payments into an interest-bearing certificate of deposit (CD) for up to 24 months. The bank reports your monthly payment to the three credit bureaus. When the loan term ends, you receive the CD balance minus administrative fees.
These are just a few of the ways you can quickly increase your credit score - try one today and let me know how it turns out the next time you check your credit score.
