Tips to Increase Your Credit Rating
Credit is a touchy subject for many people simply because it can literally ruin lives. Bad credit is like a 900lb. gorilla on a person’s back. This is why I wanted to take some time to research, along with take all the tips my friends have given me (who work at credit companies) to give some advice to increase one’s credit rating. There are a few simple ways you can save yourself from huge headaches.
The first piece of advice I want to give to people is something my father has told me a million times over: always pay your bills in full when you get them. Simple advice yes, but many people just figure they will pay the minimum amount each month and that will be sufficient. Interest continues to pile on to these peoples’ bills and the debt-storm begins. If you cannot afford to pay a bill off all at once, consider not spending that money! There are also different campaigns, which companies offer for their products that say something like “no interest for 6 months” or “no payments for a year.” These are all legit offers, although you most likely will have to sign up for a credit card. With these types of offers, as long as there is no interest, paying the minimum amount is not a bad idea, though try to make a habit of paying bills off all at once.
This next tip was surprising even to me. It comes straight from the mouth of a mortgage broker who’s job is to know credit scores like the back of his hand. His first piece of advice was to have 3 credit cards. People with many credit cards and with just 1 credit card are in the same boat, it just doesn’t look good on your credit score. It’s not a horrible thing, but it’s also not a good thing. The most surprising piece of advice he gave me was to never spend more than 30% of your credit limit. Spending exactly 30% and paying it off right away is the best thing you can do for your credit. For example, if your credit limit is $1000, then don’t spend more than $300. At first I figured maxing out my credit card but still paying it all off right away was good for my credit, but I was wrong. This is looked down upon in the eyes of the credit companies. I am not sure the exact logic behind this, but this is where having 3 credit cards comes in handy. Spend 30% of your limit on each card and pay it off right away and watch your credit score (and credit limit) greatly increase.
One quote that stuck in my head, which is pretty obvious when you think about it was: “it is much harder to increase your credit score than to have it decreased for you.” If you are already in debt this does not apply to you, but if you are young and new to the credit game, take these words to heart. My friend kept repeating that you are trying to prove you have a history to these companies. That is exactly what credit is, a history of you. You want to prove to people that you are capable of handling credit and making payments on time.
Another obvious yet underused tip is to check your credit score often. There are free ways of doing this through the 3 credit firms. The two that I use are Experian and Equifax. A word of caution: while signing up for these sites and your first few months with them are free, they eventually start charging you. I experienced this first hand when I started receiving $10 charges from them. Checking your credit score often allows you to catch any problems very early before they start taking a toll on your credit.
Another not-so-known tip is to not close your credit cards. What I mean by this is if you have a credit card that you don’t use, don’t close it. It still creates a history for you. Also, the longer you have a “trade-line” open the better. A trade-line is just an credit card account. Having a credit card for 8 years looks much better than having it for 3 months, regardless of how much you spend.
These are just some simple tips to improve your credit score. Hopefully you will implement these tips and watch your credit score rise.
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will paying all my debts in full increase my credit score. i am 23 and my credit score is 475. will paying off my debt increase my score significantly and if so how much much and how fast?
Hey April,
Paying off all your debts in full is always the best course of action. It will not instantly increase your credit score but it will allow you to take control of your debts, in turn allowing you to increase your credit score.
Unfortunately it is much easier to have your credit score lowered than it is to raise it. So try to pay all your debts off then follow the steps in my post to raise your credit score back up over time.
If you are in serious debt, try a debt consolidation company.
Thanks for the post, I hope this helps. Let me know if you have any more questions.
Thanks,
Matt
Hi:
I recently found incorrect information on my 3 credit reports. I am in the process of disputing them. My credit score is a 488 and 499. I find it hard to believe that because of the errors on my report for the past 4 years, my credit score is so low. Granted, there are other delinquencies as well, and you did mention to check your credit report often; in which if I would have before 4 years, I would have caught it earlier! However, is it fair to have your credit score lowered because of mistakes of others? I recently bought a car and I was not aware of the errors. Does this mean that I rec’d a higher interest rate that shouldn’t have been because of these errors? Is this fixable, or the price I have to pay for not checking my report early on?
Thank you!
Jennifer
Hi:
I have another question. You say above to have 3 credit cards. What if no one wants to give you credit? They make it nearly impossible to obtain a credit card when you have bad credit. I have one credit card right now for bad credit and am using it to repair, however, I cannot locate any other credit card companies willing to extend credit to me. Do you know of any? Are the pre-paid ones worth getting?
Thanks!
Jennifer
HI,
I HAVE PAID OFF ALL OF MY BILLS AND IN THE MARKET FOR BUYING A HOME WILL A LOW CREDIT SCORE STILL PREVENT ME FROM GETTING A LOAN
Great post Matthew. All of bills are auto pay and my credit score is great because of it but I want a stellar credit score as i want to start a business. I have been avoiding getting a credit card but not having one seems to why I am not cracking a certain threshold.
I actually have a credit card but it sits collecting dust. Now I am going to start spending on it but set up auto pay so that all of my payments are on time and in full.
I do not really want to sign up for two more but maybe, most likely ones with points like your Wells Fargo card or Miles. Maybe one with points and one with Miles. Hmmm.