1. Don’t max out your credit cards
Your credit score is based on a number of different factors, but one of the most important is your credit utilization ratio. Your credit utilization ratio refers to how much of your available credit lines you are using.
Banks don’t like when you’re using more than 30% of your available credit line. Statistically, those who do, have a higher propensity to go delinquent on their next bill. Think about it, if you really were in financial trouble, you would likely have to max out your credit cards. Banks don’t like lending to people in financial trouble.
By keeping your overall credit use below 30%, you can demonstrate to your bank and other lenders how responsible of a borrower you are. Plus, keeping your credit use down will also reduce the amount you’ll have to pay monthly to service those credit card bills.
2. Increase your credit lines
As we mentioned above, you really shouldn’t have balances greater than 30% of your outstanding lines of credit. There are 3 ways to combat the problem
The first, and most obvious is to ask for a credit line increase. By spending the same, but having a higher credit line, you’ll be using up a lower percentage of your credit line.
Before asking for a credit limit increase make sure you are likely to meet the requirements for such a request. Typically, banks consider a few things when determining if a borrower qualifies for additional credit:
- Account standing: Keeping your account in good standing is critical to giving yourself the best possible chance for a credit limit increase. Being “in good standing” means your payments are up-to-date and you have no penalty APR or late fees. You’re trying to show that you’re responsible enough borrowing money that having access to a higher amount won’t pose a risk for the issuer.
- Income: Your income should complement the potential costs of carrying an extra debt burden. Try to avoid requesting a credit increase if you’ve recently lost your job as this tells the issuer that you want more spending power without realistic means of paying back what you might owe.
- Credit history: Open accounts with high balances or those that have gone into collections are all items that affect your credit score and give a bleak impression of you to credit card issuers, and they won’t want to risk their money with someone who likely won’t pay it back.
If you can’t get a credit limit increase from your bank there are other options. You could apply for more credit cards instead, though this may further complicate your credit history and score. Having additional lines of credit, with the same amount of spend, will once again reduce your total balance to line ratio. Or, if you are unable to get additional credit, pay your credit card balance down twice a month to relieve pressure from debt.
3. Don’t apply for too many credit cards at one time
We all want the best credit cards out there. However, apply for too many credit cards at once, and your credit score will decline. You’ll likely get declined for credit cards you otherwise would be approved for if you spaced out your applications. Look at it from the banks perspective, when someone is in financial trouble, what do they do? Apply for credit, everywhere and anywhere.
Again, people who apply for credit from multiple banks all at once, statistically have a higher propensity to become delinquent in the near future. The banks have difficulty separating those who are just excited to get great offers and can afford it, from those who are desperate for credit, and will likely default – their habits look the same.
So what should you do if you want to travel hack and bonus surf your way to a bunch of 25,000 mile sign-up travel card bonuses? It will depend on your income, your current score and your need for credit. If you’re about to apply for a mortgage, play it safe. To play it safe, wait 60-90 days between applications, then monitor your credit score to see if it was impacted. If it was, see how long before it came back to normal. If it wasn’t impacted, maybe tighten your horizon and be a little more aggressive.
4. Don’t close old credit card accounts
You might think getting rid of an old credit card you no longer use is a good idea for your credit health, but you’d be wrong. Avoid closing old credit card accounts you no longer use.
Closing an old credit card account lowers your credit score in two way:
- First, removing old accounts from your credit report will lower the average age of your credit history. This credit factor is much less important than payment history or credit use but plays a role in what comprises your credit score.
- Second, closing unused credit accounts lowers your credit use by eliminating existing open lines of credit.
5. Don’t be late making your payments
This doesn’t mean you have to pay off your credit card balance completely. However, it does mean you can’t be late, even by an hour, when paying your minimum payment on your credit card bill, mortgage, car loan, or lease. If you find it overwhelming, then put all of your monthly recurring bills on auto bill payment with your bank – you’ll never be late.
You can typically schedule to make a fixed payment amount, the minimum payment, or any balance in full. Even if you auto pay the minimum payment, and then manually pay the balance, you’ll avoid ever being late. There’s no excuse not to use it.
6. Make a plan you can stick to
If you’re really ready to take the plunge and begin improving your credit score, you’ll want to come up with a sound plan that is easy enough to follow. How are you going to make sure you’re not late with any payments? Should you be cutting back on your credit card spending? Can your credit score take another credit card application? Coming up with actionable steps is the best way to ensure you’ll be on the road to improving your credit.
If all of this sounds overwhelming, you might want to seek out help and use a tool that makes a plan for you. MyMarble does just that. There are a few different plans to choose from, each offering different and more comprehensive solutions to your credit score woes than the last.
Once you sign up and connect your bank account, MyMarble will take a look at your monthly reports and help you understand your spending trends. From there, they can recommend a plan of action that will help you begin to improve your financial fitness, and even pair you with their other tools such as Score Up, a credit building tool that creates customized recommendations for you, their Fast-Track Loan, a loan you can access that helps you build credit as you pay it back, or maestro, their comprehensive financial education platform. Either way, MyMarble will help you get the boost you need to increase your credit score.
7. Use the right tools
There are plenty of tools available to help you improve your credit score, the trick is knowing which ones to use. You’ll want to begin by assessing your needs and understanding how you want to go about fixing your credit score. From there, you’ll be able to narrow down the list of tools you can use. For example, you might want to use an app that gives you an overview of your finances and helps you monitor your credit score so you’re always up to date. Alternatively, if you want a more hands-on approach, you might want to look into getting a secured credit card to help boost your score each month. There are plenty of options out there, so don’t be afraid to try one or more of them out.
What should you do now?
Your first step right now is to know your credit score and to review your credit report at least twice a year. Unfortunately, while you’re entitled to a free credit report every year, your credit report doesn’t come with your credit score. Also, learn about what really does and doesn’t affect your score. There are many commonly held beliefs that are actually false when it comes to what affects your credit score, so best to research them before making any decisions.
While not always free, using tools to improve your credit score and get credit report are essential to monitoring your financial health, and ensuring there are no fraudulent credit lines in your name. That said, knowing where you stand, and where you have to get to, is imperative if you’re looking to manage or improve your score.
