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Credit is a finite resource — but so are your time and energy. While boosting your credit score might take a bit of effort, it doesn’t have to be a Sisyphean task. If combing your credit card reports for errors every month and disputing them is not an option, consider these easy ways you may be able to boost your credit and keep it in good standing.
Why your credit score matters
Your FICO credit score is used by lenders to determine your risk as a borrower. This three-digit number between 300 to 850 is created by a mathematical algorithm and based on financial data, such as how often you pay your bills on time and how much debt you have. The higher this number, the better your options will be.
A healthy FICO score can help you get lower interest rates on loans, land you better offers for credit cards and even improve your chances of getting the job or residence you want.
Your FICO score is made up of the following elements:
- Payment history (35%): This factor looks at whether or not you have repaid your debt on time, and how often.
- Credit utilization (30%): This is the amount you owe, divided by your total available credit. Your score will suffer if your balances exceed 25% to 35% of your limits.
- Length of credit history (15%): The longer your history and the older your credit accounts, the better for your credit score.
- Credit mix (10%): Your score will be higher if you can demonstrate your ability to use and pay off a mix of types of credit, such as installment loans, mortgages and lines of credit.
- New credit (10%): The more often you apply for credit, the more you will be seen as a high-risk credit seeker, which will lower your score.
9 easy ways to start improving your credit
1. Get a credit limit increase, but don’t use it
Simply call your credit card issuer and ask them to increase your credit line.
“What do you have to lose?” said personal finance expert Uri Abramson, the Los Angeles-based co-founder of OverdraftApps. “If you have a good payment history with them and your financial situation supports your request, you might just get it; if not, it's five minutes of your time.”
A couple of caveats:
- Don’t ask for increases too often: Your card issuer will do a hard inquiry into your credit rating, which can negatively impact your score.
- Don’t spend more money just because you have access to more cash: The purpose of a credit increase is not to finance a future shopping spree, but to lower your credit utilization ratio, which accounts for 30% of your credit score. For example, if you have a limit of $10,000 and you owe $5,000, then your credit utilization ratio is 50%. But if you can boost your credit limit to $20,000, the ratio drops to 25%.
2. Pay off your credit card balance in full with an installment loan
The other way to increase your credit utilization ratio is to decrease your balances on your credit cards. Using a personal loan to pay off your credit card in full is a good way to boost your score, because it doesn’t affect your credit rating the same way, often carries lower interest rates and can help you diversify your credit mix. You can learn more about that here.
3. Keep your balances low on an ongoing basis
If you happen to have a high balance on your card, your credit card issuer will report high credit utilization, which will negatively affect your score. On the flip side, if you’ve already paid off part or all of your purchases, the issuer will report a lower balance to the bureau, which could boost your credit score as a result.
One tip is to pay off your bills when the statement is issued, rather than when it’s due. According to Abramson, this is especially important for major purchases, because most credit card issuers send reports to credit bureaus around that time.
However, a good rule of thumb is to keep your balances low on an ongoing basis. Just because your credit card has a maximum balance of $25,000 doesn’t mean you should use it all, said financial planner Ben Smith, the Milwaukee, Wis.-based owner of Cove Financial Planning — “maintaining a balance near that maximum amount for too long can have a negative impact on your credit score, even if you’re paying your balance off on time.”
4. Automate your bill payments
Make sure you keep more money in your checking account than what you charge to your cards, so you never again have to worry about paying your bills late.
“Autopay makes building a credit score literally effortless and has helped me not miss a payment in years,” said Evan Sutherland, the Pullman, Wash.-based co-founder of personal finance website BudgetingCouple.com. “Thanks to autopay, I’ve earned tons of cash back, have no credit card debt, and have a credit score above 820.”
5. Don’t cancel your credit cards, even if you don’t use them
Closing a credit card that you no longer use can negatively impact your credit score. This is because credit bureaus consider your credit history, including the length of time your accounts have been open, when determining your credit score.
“The longer the line of credit has been open, the more favorable your score,” said Smith. “There are, of course, situations where it might make sense to close credit card accounts, so when opening up new ones, consider how long you plan on using them in the future.”
6. Become an authorized user on someone else's card
If you become an authorized user on someone's credit card, even if you never use it yourself, that activity is reported on your credit report as well. This is an easy, low-effort way to boost your credit score, said Tucson, Ariz.-based Marissa Sanders of Simple Money Mom.
“As long as the person you ask is extremely good with money, pays their bills on time, and uses very little of their available credit, you can reap the benefits,” she said.
7. Sign up for a free credit monitoring service
We get it — you don’t have time to pore over and analyze your credit card reports every month. But as Smith noted, there are credit monitoring resources online that can analyze them for you — providing free, periodic access to your credit score including any factors that negatively impacted it.
“Knowing what has negatively affected your score can be just as important as understanding what’s enhancing your score,” Smith said. “Keep in mind many credit card companies and banks partner with credit bureaus to provide free credit monitoring services, so consider asking your own bank or issuer about accessing it.”
8. Hire a reputable credit repair company
Maybe excessive debt isn’t your problem right now, but you need help cleaning up derogatory items from the past. By hiring a reputable credit repair company, you can have them do all the heavy lifting required to clean up items that are old or should never have been there in the first place, said Jared Weitz, the Great Neck, N.Y.-based founder and CEO of United Capital Source Inc.
Make sure you do your research first before signing any contracts. You’ll want to make sure the credit repair company is licensed, bonded and insured, doesn’t have any complaints lodged against them in the Consumer Financial Protection Bureau’s consumer complaint database, and doesn’t demand payment upfront.
9. If you just became a citizen, notify the Social Security Administration right away
Simply becoming naturalized could boost your credit score.
“Credit scores are basically numerical representations of risk,” said Pompano Beach, Fla.-based immigration attorney Renata Castro. “If you got your credit card while you had a visa or a green card, you represent a higher risk to a bank than if you are a U.S. citizen.”
Having a healthy credit score can save you a significant amount of money in the long term, while also allowing you greater opportunities for employment and home ownership in the future. While it’s important to always be mindful of how your actions impact your credit score, sometimes life gets in the way. With the help of these low-maintenance ways to boost your credit score, you can still stay ahead of the game when it comes to your overall financial well-being.