5 Foolproof Tips for Increasing Credit Score
Tips for increasing credit score is a major topic on the worldwide web, with so many credit advisory platforms addressing the question from different perspectives. However, increasing credit score is not as complicated as the topic may seem to suggest.
Actually, there is no magic to it, but despite this, there are some few steps that you could take, which are certain to work in your favor if you intend to increase your credit score.
The first tip for increasing credit score involves timely payment of bills
This is pretty an easy one to implement, right? That’s what many people might think. However, as easy as it might seem, not many people are able to implement this simple routine in their bill settlement schedule.
Therefore, it is important to establish channels that will help you make payments on time and without failure. You can implement this by automating some of your bills, especially the ones related to servicing loans or paying for your credit card debt.
You can also improve payments by separating your income. Set aside the money that you plan to use for bill payments from the money you intend to use on regular spending, savings, and other financial outflows.
This will enable you to settle your bills without failure thereby increasing your credit score. Notice that the FICO credit score system which uses a three digit number to allocate credit score to consumers looks into your historical payments relating to bills (rent, mortgage, credit card debt, and personal loan among others). Therefore this is a very crucial item for increasing credit score.
Maxing out your credit cards isn’t a good idea
Some people prefer to use their available credit up to the limit. It is enticing to do so after all because you will be settling the debt at the end of the period. However, this is actually not a good idea. Increasing credit score is pretty match possible if you prefer the reverse of this scenario. When calculating the credit score, the system picks out your total debt and compares it with your available credit.
The higher the credit utilization ratio, the lower the credit score you are likely to get. Therefore, if you are looking for tips of increasing credit score, reducing this ratio would be one of them and this means that maxing out your credit cards isn’t going to cut it.
Having a number of active credit accounts is a good idea but don’t do it in a binge
Having a $10,000 debt in total, across a line of five credit accounts each with a credit limit of $5,000 is much better than having such a debt across two credit accounts each with a limit of the same amount. The simple reason is that you will have a lower credit utilization ratio in the first scenario, while in the second scenario; your utilization ratio is 100%.
However, this does not mean that you go in a credit account opening spree to open three new accounts at once. Rather than contributing positively to your credit score, this might actually hurt your overall credit score.
Credit scoring systems are designed to detect when a person opens a lot of credit lines for the sake of improving their credit score (rate shopping). Therefore, opening multiple lines of credit at the same time could raise a red flag and count against you increasing credit score.
Don’t rush to get rid of your old debt
Well, this might sound like I am contradicting myself but I am not. Being debt free is good, but erasing your debt history is not good. Debt history is one of the key items used by FICO to derive your credit score.
As such, if you have a history of some good debt, this could be important in increasing credit score. The credit scoring program looks at your past history in debt payments and if there is nothing to find, then things like rental payments and other related bills could be considered.
Therefore, do not rush to get rid of your old debt because you never know how important it could turn out to be in increasing your credit score.
Try negotiating for higher credit limit
This works the same magic as having a good number of credit lines. This is because, with higher credit limit on the same amount of debt, your credit utilization ratio would be lower.
The ability to negotiate for a higher credit limit also counts positively because it shows that your creditors are comfortable and happy with your current credit history. Therefore, do not fret that you would be turned away by your creditor, getting higher credit limit could be crucial in increasing credit score.