3 Ways To Boost Your Credit Score
There are many benefits to having a high credit score.
What is defined as a high score? Here’s how MyFICO defines them:
Keeping your credit score high can have many advantages, such as applying for lower interest rates and insurance plans. Other advantages include:
- Qualifying for better vehicle options and monthly payments
- Paying lower interest rates on credit cards
- Getting approved for higher credit limits
- Qualifying for better loans with lower interest rates
- Having more housing options (landlords often check credit scores)
You can apply for better homes, vehicles, personal loans, credit cards and even utility services with a high credit score. This should be reason enough for you to follow the steps below on raising your score.
Don’t Spend What You Don’t Have
This may be a no-brainer, but you should never spend money that you don’t have. Simply put, if it’s not sitting in your bank account, it shouldn’t be charged on your credit card.
If you want to raise your credit score, you need to be able to pay off any transaction to your credit card as soon as it is posted. Don’t have the money in your account? Don’t make the purchase.
Many people may be wondering: “What about emergencies?” I get it, life is unpredictable. Shit happens. And if you live in the United States, you know that medical bills can be very unforgiving. An emergency in that sense may add up to thousands of dollars that you don’t have readily available.
That is why I am a firm believer in emergency savings accounts. Ideally, you should stash away 6 months to one year of your expenses. Put these emergency funds into a high-yield savings account to gain better interest than a conventional savings account would.
Capital One offers a great high-yield savings account!
Now you can use your credit cards for expected purchases such as trips to the grocery store or gas pump. You could also make bigger purchases, so long as you have the money sitting in your bank account ready to pay that big purchase off. If you don’t have it, then it can probably wait until you do.
Never Carry A Balance
This tip goes hand-in-hand with the previous one. If you only spend what you already have, then you should be able to pay off each transaction the moment they are posted.
Now, you may be thinking: “What’s the point of using a credit card if I already have the money on my debit card?” The answer is: to raise your credit score! By paying off transactions as soon as they are posted on your credit card, you will be raising your score.
Never allow a credit card balance to carry over to the next billing cycle. Not only will you begin to pay interest on your transactions, but you will also be hurting your credit score.
In my years of using credit cards, I have never paid a penny in interest. This is because I pay off transactions as they are posted, and I use my emergency savings account for any big, unexpected purchases.
Utilize Less
Another lesser-known tactic to boosting your credit score is to utilize less of your credit limit.
Try to keep your credit utilization under 30%. For example, if your credit limit is $1,000 (common for beginners), then you should never exceed $300 on your credit balance. Once your balance reaches around $250, pay it off.
It’s difficult for some of us to only use $300 on a credit card with a $1,000 limit. However, by increasing your credit score over time, you will be able to apply for higher credit limits. Soon, you may have a credit limit of $5,000 and you’ll be able to utilize $1,500 of that.
You could also open multiple credit card accounts. Once you reach 30% utilization on one card, you can then use 30% utilization on another card without hurting your credit score. Keep in mind, however, that opening several credit card accounts in a short time frame may hurt your score. This is known as “age of credit” and is a topic for the next post!
By keeping your credit utilization at 30%, never carrying a balance, and only spending what you have, your credit score will slowly begin to rise. Then you can start reaping the benefits of high scores!
