Are you unhappy with your credit score? Credit scores help determine who gets different loans, homes, and cars. Your credit score can even affect your chances at securing a new job. Improving your credit will improve your life. These are our favorite five quick tips to improve your credit score.
#1: Understand Your Credit Score and Set a Goal
If you don’t set a goal for your credit score, you won’t know when you reach it or what you are working towards. Setting a goal helps you achieve it. To achieve your credit goal by improving your credit score, you need to first understand your credit score as well as decide where you would like to end up.
The most commonly used credit score model is the FICO model. The FICO score model ranges with scores from 300 to 850. These scores are further broken down into ranges. The “Poor” range starts at 300 and ends at 559. The “Fair” range starts at 580 and ends at 669. The “Good” range is from 670 to 739, the “Very Good” from 740 to 799 and the “Excellent” from 800 to 850. Most people who fall into the “Good” and “Very Good” ranges will have no problem securing loans but those in the “Very Good” and “Excellent” ranges will qualify for the best rates.
Set a goal for the FICO score range that you want to reach with your own credit score.
#2: Bring All Cards Below 30% Utilization
Your credit cards need to be below 30% utilization. If you can shoot for 25% utilization, this is the best. Your credit utilization counts for a significant portion of your score. What does utilization mean? Your credit utilization ratio is how much credit you have used for the month compared to how much available credit you have to use.
For example, if you have a credit card with a $1,000 limit and you spend $300 on your card then your utilization score will be 30%. If you spend $500 then it will be 50%. Credit utilization is calculated by taking your balance on every card and comparing it to the amount of credit that you can use on every card. So if you have two cards with a $1,000 limit and a $2,000 limit, but you have spent $1,000 on one card and $0 on the other, you will see that you have a utilization of $1,000 out of a $3,000 limit. That would mean that your credit utilization was 33%. Figure out what your utilization is and keep it below 30%.
#3: Number of Cards and Mix of Cards
A small factor in your FICO score is the number of cards you have as well as your mix of cards. You want to have a mix of bank cards and store cards or company cards. This shows the credit bureaus that you understand how to use credit and that you have multiple instances of using credit correctly.
If you only have a credit card issued to you through your bank, now is the time to add two to three store cards or company cards. You can get these cards from stores that you regularly shop at to rack up points or get these from airline companies or other banks. The trick here is to make sure that you sign up for cards that do not have annual fees.
#4: Pay Your Credit Cards Twice a Month
This is a little trick to make sure that your credit cards are being reported at lower utilization amounts. Have you ever looked at your credit report only to see that your bank said you used $1,000 of your $1,000 limit that month? Were you confused because you pay your card off in full every month? Does it look like you have a 100% credit utilization ratio even though you should have a 0% credit utilization ratio because you pay in full every month?
The reason for this is that the bank reported your statement at the end of the month before it had calculated your payment. If you pay your credit card twice a month, you won’t run into high utilization reports at the end of the month. Try paying on the 15th and paying again before the end of the month on the 25th or 26th to make sure that your reports are low. You can help yourself determine the exact reporting days by signing up for an account at one of the three credit bureaus — Experian, Equifax, or TransUnion —— and then monitoring your report daily. You’ll begin to see when your credit card companies report to the bureau and this will help you schedule your monthly payment accordingly.
#5: Set Up Payments to Auto-Pay
Did you know that late payments count for 30% of your FICO credit score? When you routinely have late payments on your account, you set yourself up for a poor credit score. The only way to improve this section of your credit report is to pay your payments on time. And, you guessed it, that takes time. Avoiding late payments to begin with is a much better strategy.
The best way to avoid late payments is to set up all of your important payments to auto-pay those accounts. Not sure which payments must be paid on time each month? Request a free credit report and take a look at your report. What accounts show up? You should see your bank’s credit card as well as all of your other credit cards. You should also see all loans that you have taken out. Set these different accounts to auto-pay and rest easy knowing you won’t have a late payment.