I got my first credit card when I started college. I didn’t know anything about credit cards, besides the fact that I could get a free t-shirt and water bottle if I signed up for one. Talk about predatory. I wasn’t thinking about my FICO score let alone about how to increase credit score.
Gaining access to a credit card at that point in my life ended up being one of the worst mistakes of my life. I ended up spending the first two years of college ruining my credit by accumulating unpaid debt. When my mom found out, her fury scared me into getting rid of my cards and never acquiring another one again. I basically tried to forget all about the cards and pretended the problem never existed for the sheer fact that I didn’t know how to handle it.
When I got my first job out of college, I turned to the universities Housing and Credit Counseling services for help and advice. This was the first time I inquired about my credit score and the first time I had a professional break down my report. Although my credit wasn’t at rock bottom, it was a devastating blow to come face to face with my recklessness, while learning more about what it meant to have good or bad credit.
The counseling on my credit didn’t take away my fear around credit card use. I continued over 5 years of my adult life without a credit card. I resorted to a cash is king lifestyle not realizing that having credit was a huge part of my credit score. It took me a while to realize that I couldn’t build on something I didn’t have.
How Credit Can Affect You
As many of you probably already know, your credit score can affect your interest rate on loans for your car, home and credit cards and it can disqualify you from obtaining certain cell phone plans, apartments, or jobs.
Other ways your credit affects you is through your car insurance and utility deposit rates. Having higher rates on all of this makes it harder to save money.
Here are the 4 tips to increase credit score.
Ask for a credit increase
Being that I didn’t have much credit when I applied for a credit card 5 plus years later, I didn’t get a huge credit limit. So, after my no interest rate terms ran out, I called my credit card company and simply asked for an increase in my credit limit. They asked me a few questions and then instantly approved me for an increase.
Your credit limit represents the amount of credit you have available to you. Although your credit limit doesn’t affect your score, the way you use it can. Utilization is the amount you owe and your utilization rate is how much you owe against your credit limit. Utilization rates affect your credit score and the higher the limit the lower the chances of impacting your utilization score. The goal is to have your utilization at 30% or lower.
For example, if your credit limit is $2,500 and you spend $850 your utilization rate is 34%. If your credit limit is $3,000 and you spend $850 your utilization rate is 28%.
When to ask for an increase
When you’ve had a pay increase
Credit bureaus consider an increase of income as an increased capability of paying for your expenses.
When you have good credit
Making strides in your credit score and showcasing through your credit score that you are responsible signals to your credit issuer that you can handle an increased limit.
Keep your utilization rate low
The goal is to spend less, even when you have access to more. Consistently keeping your utilization low can improve your credit score. It’s not just a matter of paying your card off, but also keeping the spending on the card low. Credit utilization accounts for 30% of your FICO score.
Although the general rule of thumb is to keep utilization rate at 30% or lower, increasingly financial experts are recommending that you don’t go above 10% if you want an excellent credit score or to dramatically increase your credit score.
Pay the amount due in full every month
Paying your balance off and on time shows that you can manage money well. Doing this also eliminates interest. Ideally, you should charge only what you can afford on your credit card. If you worry about your ability to pay off large amounts, you can improve your payment history by putting a small bill that you already always pay (such as a subscription bill) to your credit card and pay it in full every month.
These small tips helped my credit increase in a short two months and I’m excited to see how much more it will increase in the next year. I’d love to hear how you have improved your credit score! And as always let me know if you have any questions!
Make on time payments
The single most important factor in credit scoring is on-time payments. Payment history makes up 35% of your credit score. Even a single late payment can drastically affect your credit score. An individual can experience up to a 180 point drop in their FICO score depending on severity of the late payment and credit history.
How soon are late payments reported?
In most cases it takes at least 30 days from the payment due date for late payments and non-payments to be reported. This doesn’t mean it should be made a habit. Late payments can affect you in other ways, such as late fees.
Order your free credit report from Experian and get a list of top factors affecting your credit score.
Bottom line
These 4 tips to help increase credit score can do so quickly if you take action on them. Don’t wait before implementing them to your credit strategy.
