These tips for increasing your credit score are provided for information purposes only and is not intended to be legal advice.
Why your Credit Score is Important
Your credit scores determine whether you can finance a car or a house, get an apartment and possibly whether you will be hired for your next job. If you do qualify for a loan, your credit score will determine how much interest you’ll pay. And insurance companies, cable companies and even utility providers use your credit score to determine the rates or deposit amounts to charge you.
Things you can do to Increase your Credit Score
- Stop Using Credit Cards
- Increase Payment Amounts
- Pay Off Small Purchases Quickly
- Set Payment Reminders
- Regularly Request and Review Your Credit Report
- Keep Accounts Open
- Examine Your Debt Ratio
- Keep credit applications to a minimum
- Take out a credit-builder loan
- Take out a micro loan
How these Steps Improve your Credit Score
Stop Using Credit Cards/Increase Payment Amounts
Stop using credit cards and paying more lowers your credit utilization rates. Your credit utilization is a critical factor in determining your credit score. As explained by Credit Karma:
Lenders don’t like high utilization rates because it tends to indicate there’s a higher chance of you not being able to repay your debts. Keeping your credit card utilization low, preferably under 30%, is a good goal to aim for. Our data suggests an even better goal is to use your credit some, but keep the utilization rate under 20%. Creditors want to see proof that you can manage credit wisely—something you can’t do without using the credit you’re granted.
A sure way to decrease your credit utilization (and hence increase your credit score) is to stop credit card purchases and continue or increase regular payments on your credit cards.
Payoff Your Credit Purchases in Full Each Month
Notwithstanding the advice above, you can improve your credit score by making small credit card purchases and promptly and timely paying off the full amount each month. As explained by Credit.com:
Thirty-five percent (35%) of the points that make up your FICO credit scores is based on your payment history. A full one-third of your score is determined on this category alone. This means that if you have a poor payment history then it is unlikely that your scores will be high enough to ensure competitive interest rates and optimal terms when you apply for credit. Conversely, having a solid payment history is a great first step towards earning a solid FICO score.
Raising your credit score is one of the best ways to gain a greater sense of financial stability in your life. Taking the necessary steps and following through on your commitments can make your credit score jump up even quicker than you may think is possible. Setting payment reminders on your phone, computer, or other devices helps to remind you to make payments on time.
Review Your Credit Reports Regularly
Regularly reviewing your credit report is a good way to track the progress of your efforts to improve your credit score, including keeping a track on the credit utilization and payment histories. Regular credit report reviews helps you catch false or incorrect information on credit report early. Credit vigilance is particularly important as you prepare for applying for credit for important purchases such as a home or a car.
You have the right to one free credit report each year from the big three credit reporting agencies: Equifax, Experian, and Trans Union. You can get these reports here: www.annualcreditreport.com. Trans Union allows you to access your Trans Union and Equifax anytime you want for free at www.creditkarma.com. Experian allows you to access your Experian credit report at www.freecreditreport.com. You can also get credit report information and credit scores at www.wallethub.com.
Don’t Close Your Accounts
Many people don’t know this: Closing credit card accounts can hurt your credit score. As explained by Bankrate.com, closing credit card accounts:
(1) negatively impacts your credit-utilization rate (less available credit means a greater credit usage rate even if you don’t increase your credit usage);
(2) reduces the length of your credit history, which is another factor that goes into the computation of your credit score; and
(3) changes your credit-usage mix. FICO credit scores consider your mix of credit types; the more diverse, the better for your score. Mix of credit contributes 10 percent to your overall credit score.
Don’t Apply for Credit Needlessly
Applying for credit can lower your credit score. Credit applications result in credit inquiries that show up on your credit reports and are visible when a lender pulls your credit report. These are called “hard inquiries.” According to MyFico.com, each hard inquiry can decrease your credit score by a little less than five points each. So keep those credit applications to a minimum.
Take Out a Secured Loan or Credit Card
Here’s another piece of advice that is seemingly contrary to the advice it follows. But the truth is, you have to have credit in order to improve your credit score. With secured loan or a credit card, you borrow from yourself to build a positive credit history. With a loan, the loan goes straight into a savings account, and you make monthly payments until the loan is paid in full. Then you get your money back, minus a small amount of interest. Some credit unions offer this product to members, calling it a Savings Secure loan. With a secured credit card, you deposit money in a bank and get a card with a limit up to the amount you deposit. You pay the credit just like you would with an unsecured credit card.
An Austin startup, www.selflender.com, launched its version in March 2016, in partnership with Austin Capital Bank. You get a $1,100 loan with an interest rate of about 11 percent, which goes into an FDIC-insured one-year certificate of deposit in your name. You pay $12 to get the loan and, a month later, start paying $97 a month. Those payments get reported to the major credit bureaus. At the end of the year, you’ve paid off your loan and the CD has matured. So you’ve paid $1,176 and gotten back $1,101.10 (you earn a little interest on the CD), which means you’ve paid about $75 to Self Lender.com.
Take Out a Micro Loan
Lenny (www.getlenny.com) is a mobile lending app that targets consumers between the ages of 22 and 35. It is a sort of microlender that reports your payments to two of the three major credit bureaus, Lenny can help you build your credit score and can be a cheaper way to get emergency funds than going to a payday lender or getting hit with multiple overdraft fees.
For members, who pay $2 a month, Lenny can make loans from $100 to $10,000 in three minutes. You can then transfer the money to your bank account or send it to a friend who uses Lenny. If the loan is paid back within 30 days, there is no interest charge. The app has lots of prompts to alert you when you’re doing something that could hurt your credit score, such as getting too close to a payment date while having drawn down 30 percent or more of your credit line.
We offer free credit report reviews. We can put together a solid plan for fixing the errors on your credit report. If you’d like us to take a look at your credit report, please call (502-473-6525) or email (james@kyconsumerlaw.com) us today.