There are a few reasons you want good credit. Your credit determines your eligibility for credit cards, car loans, and mortgages. If you’re looking to buy a house, you’ll only get the best rates if your credit score is 700 or higher. If you’re looking to change jobs, your new employer will likely check your credit score before hiring you and if you want to rent somewhere, your landlord is going to check your credit prior to approval.
In short, your credit score determines a lot of things in your life, whether you’re looking to secure credit or take advantage of lower interest rates on credited items.
While it may seem like a daunting task, here are five quick and easy things you can do to boost your credit score.
You’re shooting to keep your credit card balance at less than 20% of your total credit if you want a high FICO score. This means if you have $10,000 of credit available, you want to be carrying a balance of less than $2,000. If your balance is higher than 20%, then your best bet is to clear those debts as soon as possible.
Take care to avoid doing things that look to be quick fixes, such as transferring your balance from one card to a different one. The problem here is that you’re not actually decreasing your credit, you’re just moving it from one place to another – creditors are interested in your total utilization of credit, not just your individual debt.
Did you know that your score might be higher than you think?
Credit reporting companies can make mistakes just like anyone else. You might have duplicate or inaccurate items on your credit report. Even if you don’t have any duplicates or inaccuracies, something as simple as a misspelled address or name can negatively impact your credit score. Why? The misspellings themselves don’t impact your score, but they can lead to false late payments, meaning that collections will show as being unpaid even though you might have already paid them. Or it’s possible than an account has been opened in your name without your knowledge.
Of these five recommendations, this is probably the easiest. Call the number below for a free credit report summary and credit consultation.
There exists a myth that leaving a credit card unused will increase your credit score, or at least keep it at a high level. This is inaccurate. Why? Because when you’re using your credit card, you’re providing creditors with demonstrations of how you handle credit. If you don’t use your credit, then creditors have no idea how you would use it.
The best way to make the most of this tactic? Use your credit card, but use it wisely. Use it on small transactions, ones that you’ll have no problem paying off at the end of the month. Using your credit card in this manner will keep interest from accumulating and give creditors an idea as to how you use your credit.
Similarly, you can apply for a new credit card – one with a lower interest rate – and use it in the manner described above.
Even if you’re not using your old credit card, keep the account open. Closing the account will have a negative impact on your credit score because it impacts your “utilization ratio”.
What is the utilization ratio?
In a nutshell, your credit score is determined by looking at your available credit versus your used credit. Your current credit card accounts determine your available credit; how much of it is used, obviously, determines your used credit.
In other words, let’s say you have two credit cards. Each card has a $20,000 credit limit. Your available credit, therefore, is $40,000.
You’ve used $15,000 of your available credit. Because your available credit is $40,000, this means you’ve used about 37.5% of your available credit. This is a relatively small percentage.
Now let’s say you close out one of those accounts. Even though your used credit is still at $15,000, you only have $20,000 in available credit.
Instead of using 37.5% of your credit, you’re now using 75% of your credit – which looks much worse to creditors.
The way to work around this? Pay off all of your credit before closing any accounts. That way, your percentage stays nice and low.
As mentioned above, you want to keep your balance below 20% of your total available credit. It doesn’t matter if you have one credit card or four – what you want to do is add together the credit limits of all of your cards, and then figure out 20% of that number.
So for example, if your total available credit is $10,000, then you want to keep your balance at $2,000 or below.
If your total available credit is $5,000, keep your balance at $1,000 or below.
If it’s $50,000, keep it at $10,000 or below.
When you’re ready to get your credit report summary, call the number below. You’ll get the summary and consultation free of charge, without an obligation to purchase anything.
The information on this page is not intended to be legal advice. Our participating providers will offer an individualized consultation to determine the right services and products for you, if any.
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