If you're like me, you're probably always on the lookout for ways to improve your score, but building a strong credit score can be a very long process that can take years. However, there are some things that you can do today to improve your score. So here are five ways that you can improve your score right now.
#1 Pay your bills on time.
Now I know this sounds pretty obvious of course paying your bills on time will lead to a good credit score, but sometimes we can under estimate just how important this one action can be to improving our credit.
There are five factors that go into calculating your credit score. The largest factor making up 35 of your overall score is your payment history. Making sure that you pay your monthly credit card car payment, mortgage, and all those things on time will ultimately affect over one-third of your overall credit score and there really aren't too many other actions that you can take that will have this big of an impact.
So to make sure that you never forget about this one simple action just set up automatic payments for all your debt to make sure that you make your payments on time and you keep your credit score nice and strong.
#2 Pay your credit card balances strategically.
If paying your bills on time is priority number one, paying down your debt should be a close second on that list. The amount of available debt that you are using is called your credit utilization and this makes up about thirty percent of your overall credit score.
Funny enough, using less than thirty percent of all of your available credit is the best way to improve your credit score. Actually a utilization rate of zero is even better, but maybe you are in a position right now to pay down all of your credit card debt.
So instead focus on paying down your credit card strategically your credit card company reports information like your balance and payment history to the major credit reporting bureaus, this would be Transunion Equifax and Experian.
What you want to do is to make sure that your balance is lower when the card issuer reports this information to these companies. One trick you can use is to make a payment before the billing cycle ends. This increases your chance that the lower balance will be processed and then reflected on your account before they report your information.
Another alternative which is something that I’ve used many times before, is to just make several small payments throughout the month there's no limit on the number of payments that you can make, so why not just make payments immediately after you use your credit card. Making credit card payments as often as you can will increase your chances of having that lowest credit card balance possible appear on your credit report, which will ultimately help raise your score number.
#3 Ask for a credit limit increase
This is actually a technique that I use all the time back when I was paying down my credit card debt years ago. As I mentioned earlier, your credit utilization it makes up about 30 of your overall credit score and when we're trying to reduce our utilization rate most of us will focus on paying down our debt now. This is a great idea don't discount this, I definitely want you to keep paying down your credit card balances, but let's look at how that impacts your overall utilization rate when you make a payment to your credit card.
So let's use this scenario of you have a credit card with a limit of one thousand dollars, and on that card you have a $500 balance, so this would mean that you have a utilization rate of 50 percent.
Now let's say you make a payment of $200 on this card this would bring your balance down to $300 and this would have the effect of dropping your utilization rate down to 30. This would have a positive impact on your credit score.
This is great, there is nothing wrong with this scenario at all, but what if you could drop your utilization rate twice as fast with just a few clicks? You can this is a real possibility and it's something that I’ve done so your utilization rate is based not only on the amount you owe but in that example I gave you it also shows how it's based on your overall credit limit.
So if you can increase your credit limit while also paying down your balances the impact can be huge overall. Credit card issuers make this process pretty simple, I’ve done it several times before in the past and it just takes a few seconds of your time, many actually allow you to just simply log into your account and then just make a request and often times you don't get to make a specific request so you can't necessarily say I want my limit to be this, you can just kind of put in a general request. They'll take all this information plus any information that they already know about you and then they'll decide if they want to increase your overall credit limit and by how much.
Just keep this in mind, though that there's no guarantee that they'll actually increase your credit limit, but how I feel is it doesn't hurt to ask.
Okay, let's go back to our original example, let's say you have that same credit card with that $1000 limit. You also still have five hundred dollars sitting on that card this gives you a fifty percent utilization rate. Now you make that same two hundred dollar payment bringing your balance down to three hundred dollars and as an effective that your utilization rate it drops down to thirty percent.
Now if you also request to have your credit line increase and it's approved, that's a key point that it's approved and let's just say for example, it moves your credit limit from $1000 up to $2000, that same $300 balance now gives you a utilization rate of 15. I did this exact thing multiple times a year while I was paying down my debt, sometimes it worked and other times it didn't, but overall I saw a pretty big improvement in my overall credit score. So set yourself a reminder to check in two to four times a year to see if you might be eligible for a credit limit increase.
#4 Get a secured credit card.
If you're just getting started on your financial journey or maybe you just have a rough history with credit, a secured credit card might be your best option for improving your credit score.
A secured credit card is a special type of card that's tied to a set amount of cash that you provide and that's what makes this a unique situation, because most traditional credit cards are considered unsecured debt and this means that there's nothing securing or providing collateral for that debt.
So like for example, if you just decided to walk away, your lender would just end up losing their money. A secured credit card is much like a mortgage in that it's secured by some asset. With a mortgage it's your home, if you decide that you don't want to pay your mortgage anymore, they can just come and take your house back.
For a secured credit card it's cash, if you walk away they'll just keep that money that you deposited. For this reason, secured credit cards are much easier to obtain, even if you have a low credit score.
So for example if you apply and are approved for a secured credit card, you would give your lender, let's say $500, and then they would put that into a special account that you can access. You would then be given a credit card with a $500 limit, this card will act just like any other credit card, just with that small limit that's placed on it, based on the amount of cash that you gave to them in the beginning.
If you decide that you no longer want this card and you want to close it or the lender for example decides to upgrade you to a traditional credit card, because you've just done such a great job managing this secured credit card, then they'll just give you your money back.
#5 Just be patient.
It really takes time and no matter how badly we want our credit score to improve, it's just not going to happen overnight. So patience is the key with this, impatience can lead to taking shortcuts that can cost us way more than we expected. I mean there are thousands of scammers, thousands of them out there right now just looking for people wanting to make a quick change to their credit score. They promise to improve your score within a few days for only a small upfront fee and if you're lucky they may actually try to do a few things. But in far too many cases they just end up helping themselves to your money and your personal data.
To make things worse, then they just disappear and I know that the slow route to improving your credit score it may sound boring and it might actually mean that some of the financial goals that you were hoping to reach may take longer than you expected, but taking your time and making slow meaningful change is going to be the best thing overall for you and for your credit score.