Improving your credit score

Whether you want to take a loan for a new vehicle or property and pay low-interest rates, obtain a good life and car insurance or qualify for good credit card deals, an excellent credit score qualifies you for those benefits and many others. A history of delinquencies, bankruptcies that stain the card report, or just too little experience with credit mentioned in the records may jeopardize your chances to enjoy the above advantages. However, even the best scores can be improved.

The credit score shows how much of a trustworthy client you are, and the next rules aim to help you be and look like one. Play the game score with this intuition in mind and the score will grow. In finances, as in life, if you love the plateau, the brilliant results will follow.

Pay your bills in time

Being up to date with the rent, utilities, and other bills is the best predictor that you will be reliant with your paying the credit card fees. Thus, you will gain the lender’s trust and a higher credit score.

The rule of 2 + 1 bonus

Being in debt can both be a nightmare for you and your credit file when considered by a bank. It shows financial weakness and inability of paying more interest fees, in case a loan is granted. If you pay your debt – so to name the first rule, rest assured that your credit score will see an increase.

Keeping a low balance in the credit card account is a symbol of one’s prosperity, so you want to take account of that when you think about how to raise your score.

However, applying these two rules leads us to fulfill a third, bonus one: balancing the credit utilization ratio.

Credit Utilization Ratio

Credit utilization ratio, along with payment history are leading factors in defining the credit score. Conceptually, this ratio represents the amount of money you used from the credit card out of the maximum amount you have available, in other words – the credit limit. The lower the ratio, the better the score. For example, if the credit limit is $10000 and the balance is $3000, the ratio will be 30%, which is ideal and should not be exceeded. Now that the importance of the utilization ratio is outlined, we will focus on how to reduce it.

1. The closing date, not the due date.

The credit card payments shall be made before the due date, to keep your score high. However, the closing date, which is before the due date, is when the ratios are calculated, and having a high balance at that time may harm your overall score, even if you pay as scheduled. To find the closing date, ask your card issuer when they send the reports to the credit bureaus and make sure to make the payment in advance.

2. Pay smart, not hard.

If you have more credit cards, but not enough funds to acquit all of them in full, pay the highest balances first. Analysts claim it’ll better your score.

3. Sometimes, you got to do the maths.

The ratio is composed of a numerator: the amount you spend and a denominator: the available amount. If you can’t lower the expenses – the nominator, raise the limit – the denominator, by easily requesting it to the bank. The utilization ratio will drop.

4. “Call a friend” method

Signing up as an authorized user of someone’s account will count toward your ratio, and overall score. This is a good option for newcomers who lack history. Though, be careful to choose a responsible person to affiliate with, as their negative score can affect yours.

Mixing is fixing

A bit of diversity is always welcome. Having different lines of credit in your current portfolio and even credit history can be a booster, as the ‘Credit Mix’ represents 10% of the total score. If you want to know the full range of criteria on which the credit score is calculated, check the pie chart at https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/. Hence, taking another loan can be something twice as beneficial – you enjoy the acquisition and improve your score.

Stay the way you are

Don’t close your unused cards unless they are a money burden, financial specialists advise. This action can lead your score to a reduction. However, opening more credit cards than needed in light of increasing your credit limits is not a good strategy either. Each card opening will cause the score to suffer a slight decline. In other words, sometimes the best thing to do is not to do anything.