A few months ago, I logged into my Mint.com account and noticed something. I saw that my credit score hit 802! To say I was surprised is a slight understatement. If you have ever read Dave Ramsey’s Total Money Makeover, you know that he puts little weight on credit scores because your goal should always be to have enough cash to buy your house, car and anything else you want. So having followed his methods to get out of debt, I never worried about what my score was. I diligently saved and invested and to my surprise, just by consistently practicing healthy financial choices, my credit score organically grew. Those choices have led me to my 800+ score and today I am sharing with you tips to increase your credit score.
One: Credit History – Keep Your Credit Open
If you are contemplating closing credits cards and it is really important for you to have a high score in the short run, it is highly important that you leave your cards open. I personally closed one credit card, but that was way back in 2003 giving me ample time to get my score back on track.
The credit agencies want to see that you have a long credit history so that they can see your behavior during that time. If you are young, it is important to establish your credit history. You can open a credit card, if you are confident that you can pay your bill on time every month. But just paying your student loans on schedule will help you build your credit history.
Two: Pay Your Bills on Time
It is very important that you pay your credit card AND student loan bills on time, every single month. Think of this as a relationship that you are building with the credit agencies. The only way that you can establish trust with them is to provide timely payments, even if you are only paying the minimum.
When a company is looking to extend credit to you and they see that you have a history of late payments, they will have no confidence that you will repay them on time either. Late payments will just drag down your score. If you have to set several bill reminders to be on time, do so!
I suggest that you only use one card on a regular basis, and that way you only have to remember to pay one bill every month.
Three: Reduce Your Overall Credit Usage
This tip is super important. Just because you have a credit limit of $10,000, does not mean you should use up all of your available credit. In fact, that is the very last thing you should do. The maximum you should owe on any credit card is 30% of your maximum. In this example, you should not owe more than $3,000 at anytime.
If you have multiple credit cards, I suggest you add up your credit limits and multiple it by 30%. If the total amount you owe is higher than that, be sure to pay down your cards until it is under that 30%. Once you have it down, keep going and pay them all off.
Four: Extend Your Credit Limit
One way to lower your credit usage percentage is to just get more credit. Some people will open more credit cards to increase their overall credit limits. But constantly opening new cards will negatively impact your score. Instead you can call your credit company and ask them to increase your credit limit. This will only work if you have established a long history with your credit company of timely payments showing they can trust you with a higher limit.
Here’s why it works. If you have one credit card with a limit of $1000 and you owe $500, your usage percentage is 50%. But if you call them and ask for an increase to $2000 and you still owe $500, your usage is now 25%. That simple move will positively impact your score without having to open a new credit card, triggering a check on your credit.
In the long run, having a high credit score but still having high debt is not beneficial to you. That high credit score is just giving you access to take out more debt. Your goal really should be to pay off your debt so you can have a healthy cash reserve and less monthly bills to worry about.