Reduce The Number Of Credit Cards
While there is no limit to the number of credit cards you may have, it is best to have as many as you can afford. If you have many credit cards, for example, your total credit grows, but you may also be required to pay a minimum amount to keep the cards active.
Its also possible to lose track of payment due dates. Having no more than three credit cards at a time is a better approach to boost your and lower your spend ratio. Limiting your credit cards also reduces the risk of identity fraud by limiting the access points to your account.
Get Credit For Rent And Utility Payments
Rent reporting services can add your on-time rent payments to your credit reports. Rent payments are not considered by every scoring model VantageScores include them but FICO 8 does not, for example. Even so, if a would-be creditor looks at your reports, rent records will be there, and a long record of consistent payments can only help.
Experian Boost also can help, but in a more limited way. You link bank accounts to the free Boost service, which then scans for payments to streaming services and phone and utility bills. You choose which payments you want added to your Experian credit report. If a creditor pulls your FICO 8 using Experian data, you get the benefit of that additional payment history.
Time commitment: Low. After initial setup, no additional time is needed.
How fast it could work: Boost works instantly rent reporting varies, with some services offering an instant “lookback” of the past two years of payments. Without that, it could take some months to build a record of on-time payments.
Keep Old Credit Accounts Open
Because your FICO scores are partially based on how old your credit accounts are, if you close older accounts, your credit scores may drop. Another reason closing a credit card can hurt your credit is because its credit limit wont be included in your utilization ratio. “The reason is that your payment history is a significant factor in determining your credit score, so closing an old card that has most of your good payment history will hurt your score,” Amaral says. “What they can do is place a small, recurring bill on that credit card, so that it continues to build history and isn’t at risk of being closed due to inactivity.”
Quick tip: If you do keep an old credit card open and forget to use it occasionally, the bank could actually close it due to inactivity. Therefore, you should make sure to use the card every now and again to keep it active.
How To Increase Credit Score: The Ultimate Guide
If youre considering borrowing money in the future, its important to have a good credit score. A good credit score will help you get approved for a loan and will also mean youre less likely to be charged high-interest rates. This article will teach you how to increase your credit scores, from the basics of debt management to more complex strategies. So that your score stays high for as long as possible. Ready to take your financial destiny into your own hands? Read on!
How Can I Find Out What My Credit Score Is
Your current credit score should appear on your most recent credit card or loan statement. You can also buy your score from the credit reporting agencies. Be wary of credit services offering “free credit scores,” because some will require that you sign up for a monthly subscription in exchange for that first “free” score.
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Check And Understand Your Credit Score
Its important to know that not all credit scores are the same, and that they fluctuate from month to month, depending on which credit bureaus lenders use and how often lenders report account activity. So, while you shouldnt worry if you see your scores rise or fall by a few points, you should take note when a big change occurs.
The two main consumer credit scoring models are the FICO Score and VantageScore. Here are the factors that comprise your FICO Score and how much each factor is weighed:
- Payment history
- Amounts owed
- Length of credit history
- New credit
Here are the factors influencing your VantageScore:
- Total credit usage, balance and available credit
- Payment history
- Age of credit history
- New accounts
There are a variety of options for checking your credit score for free.
For example, Discover cardholders can get a free FICO Score from the Discover Credit Scorecard, or anyone can get a free VantageScore by creating a LendingTree account. American Express and Capital One also offer free VantageScores to both card account holders and the general public, though many other card issuers offer free access only to their cardholders.
Here are the tiers that credit scores can fall into, according to FICO:
|FICO Score tiers
Add Utility And Phone Payments To Your Credit Report
Typically, payments such as utility and cellphone bills wont be reported to the credit bureaus, unless you default on them. However, Experian offers a free online tool called Experian Boost, aimed at helping those with low credit scores or thin credit files build credit history. With it, you may be able to get credit for paying your utilities and phone bill even your Netflix subscription on time.
Note that using Experian Boost will improve your credit score generated from Experian data. However, if a lender is looking at your score generated from Equifax or TransUnion data, the additional sources of payment history wont be taken into account.
There are also services that allow rent payments to be reported to one or more of the credit bureaus, but they may charge a fee. For example, RentReporters feeds your rental history to TransUnion and Equifax however, theres a $94.95 setup fee and a $9.95 monthly fee.
How much will this action impact your credit score?
The average consumer saw their FICO Score 8 increase by 12 points using Experian Boost, according to Experian.
When it comes to getting your rent reported, some RentReporters customers have seen their credit scores improve by 35 to 50 points in as few as 10 days, according to the company.
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Use Credit Monitoring To Track Your Progress
are an easy way to see how your credit score changes over time. These servicesmany of which are freemonitor for changes in your credit report, such as a paid-off account or a new account that youve opened. Also, they typically give you access to at least one of your credit scores from Equifax, Experian, or TransUnion, which are updated monthly.
Many of the best credit monitoring services can also help you prevent identity theft and fraud. For example, if you get an alert that a new credit card account that you dont remember opening has been reported to your credit file, you can contact the credit card company to report suspected fraud.
Limit Your Credit Utilization
Your credit utilization ratio examines how much of your available credit you currently use. For instance, if you have $10,000 available in credit cards and have a total balance due on those cards of $5,000, your credit utilization ratio is 50%.
“The ideal credit utilization ratio is under 30%,” says Brandon R. Amaral, CFP, EA, founder and financial planner at Amaral Financial Planning LLC in San Jose, Calif. To remain below 30%, he recommends his clients reduce their spending or request a credit limit increase. “If your income has increased, most credit card companies are happy to increase your credit limit,” he says.
Note: When requesting a credit limit increase, this could result in a hard inquiry on your credit report, which could temporarily lower your credit scores. In addition, if you already have a low credit score, you’re likely to be denied a credit limit increase so requesting a limit increase might not be worth it for some.
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Make Sure Your Oldest Credit Account Stays Open
Even if you no longer use your first credit card, you may want to keep the account open. Be sure to dust off the card every few months or so in order to keep it active, or you can charge a small recurring subscription to the card, and pay it off each month with autopay.
Your credit history, or how long you have had credit, makes up 15% of your FICO credit score, so you don’t want to close your oldest card and wipe away all those years you’ve had credit from your history. Closing a credit card will also decrease your overall credit limit and lower your CUR.
There is one exception to this rule: It’s OK to cancel a credit card with a high annual fee, if you don’t use it regularly and it no longer works for your budget.
Option 2 Apply For A New Credit Card
Applying for a new credit card is also a tactic that could reduce your credit utilization ratio. By adding a new line of credit, youre essentially boosting your overall credit line, which can help if youre unable to quickly pay down existing credit card debt.
Before you apply, determine the following:
- What type of credit card you need. If you have poor or fair credit, youll want to consider a card meant to help you build a good credit history, such as a secured card. Secured cards require a deposit in the amount of your credit limit, and protect the issuer in case you default on the debt. On the other hand, if you have good credit or better, you could choose to apply for a card that earns rewards or offers an introductory APR period.
- If you prequalify for any cards. Some issuers such as American Express, Capital One, Chase and Discover allow consumers to check if they prequalify. While prequalification doesnt guarantee youll be approved once you apply, it does indicate a better chance.
How much will this action impact your credit score?
Much like requesting a credit limit increase, the amount that getting a new card can improve your credit score depends on the credit limit youre granted on the new card. The lower it brings your utilization, the better for your score.
Consider the following examples:
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How To Quickly Increase Your Credit Score
First, if you dont already know your credit score and what is on your credit report, you need to head to annualcreditreport.com and pull your free credit REPORT not score from all three Bureaus. You need to go through each report with a fine-tooth comb and highlight any errors on your report. If there are discrepancies, you need to contact the Bureau and report them immediately.
This is actually how I discovered that my identity had been stolen. A mortgage, boat loan, and car loan all in collections but those items were taken out when I was in the 6th grade! Nobody cares about your money more than you.
Use Different Types Of Credit
Having multiple types of credit such as a secured credit card, a refinanced auto loan and a mortgage payment is good for your credit score. Just make sure to pay your bills on time, or the downsides of holding multiple types of credit could outweigh the potential benefits.
Action item: Diversify the types of accounts on your credit report, but dont apply for many credit types within a short time frame. Doing so could lead to multiple hard inquiries that make your credit score drop.
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Building A Good Credit Score
Every financial decision you make may impact your credit score and your ability to get a job, loan, credit cards, basic utilities and services, even rent an apartment or lease a car. Good financial choices help lenders and businesses see you as low-risk. You’ll be more likely to receive financial opportunities, including higher credit limits and lower interest rates.
Are you wondering how to establish credit that will improve your credit report? You’ve come to the right place.
How to build credit history that benefits you:
Start earlyThe length of your credit history is a key factor in determining your credit score
Start smallLenders assume you don’t plan to live within your means when you apply for a lot of credit in a short period of time
Open store charge card or credit cards to build creditPay your balance in full each month or keep your balance low. If you don’t qualify for a store charge card or credit card:
How to rebuild your credit score:
Create a planDevelop a time frame and budget for paying off current debts
Why Does A Good Credit Score Matter
A good or excellent credit score will save most people hundreds of thousands of dollars over the course of their lifetime. Someone with excellent credit gets better rates on mortgages, auto loans, and everything that involves financing. Individuals with better credit ratings are considered lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and perks. Conversely, those with poor credit ratings are considered higher-risk borrowers, with fewer lenders competing for them and more businesses getting away with high annual percentage rates because of it. Additionally, a poor credit score can affect your ability to find rental housing, rent a car, and even get life insurance because your credit score affects your insurance score.
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How Age Impacts Credit Scores
And the news gets even better for retirees. Even though your age doesnt affect your credit scores, the age of the accounts on your credit reports does have an impact. A lengthier credit history is better than a shorter one.
A meaningful percentage of the points awarded by both FICO® and VantageScore® credit scoring models are based upon the age of your credit history. It makes sense to assume that retirees will have older credit histories. So, retirees are more likely to have an upper hand in this credit scoring category. Older accounts on your credit reports can potentially give your credit scores a boost.
According to FICO®, In general, older consumers score higher than younger consumers. Approximately 68% of consumers who are older than 60 have FICO® scores above 700, with about half of them scoring over 800. Compare that to the 18 29-year-old range where roughly 30% score above 700, and around 2% score above 800.
Only Apply For Credit You Need
Every time you apply for a new line of credit, a hard inquiry is pulled on your report. This type of inquiry lowers your score temporarily. Applying just to see if you get approved or because you received a pre-qualified offer of credit is not a good idea.
If its a single hard credit pull, the drop will be slight. However, a string of hard inquiries could signal to lenders that you are taking on too much debt. The effects of a hard credit pull on your score, according to a representative of TransUnion, can last up to 12 months.
If you do need to apply for new credit, research your likelihood of approval to ensure youre a good candidate before applying. If possible, get a pre-approval or pre-qualification, as in many instances these result in a soft rather than hard credit pull. Soft pulls dont affect your credit score You dont want to risk lowering your score for a denied application.
You should also refrain from applying for several credit cards within a short time frame, or before taking out a large loan like a mortgage.
When you shop for a mortgage, auto, or personal loan, you can keep hard inquiries to a minimum by making rate comparisons within a short time period. Applications for the same type of loan within a designated time frame will only appear as a single hard inquiry. According to FICO, this span can vary from 14 to 45 days.
Dispute Credit Report Errors
A mistake on one of your credit reports could be pulling down your score. Disputing credit report errors can help you quickly improve your credit.
You’re entitled to free reports from each of the three major credit bureaus. Use AnnualCreditReport.com to request them and then check for mistakes, such as payments marked late when you paid on time, someone else’s credit activity mixed with yours, or negative information thats too old to be listed anymore.
Once you’ve identified them, dispute those errors.
Impact: Varies, but could be high if a creditor is reporting that you missed a payment when you didn’t.
Time commitment: Medium to high. It takes some time to request and read your free credit reports, file disputes about errors and track the follow-up. But the process is worthwhile, especially if you’re trying to build your credit ahead of a milestone such as applying for a large loan. If you’re planning to apply for a mortgage, get disputes done with plenty of time to spare.
How fast it could work: Varies. The credit bureaus have 30 days to investigate and respond. Some companies offer to dispute errors and quickly improve your credit, but proceed with caution.