How to improve your credit score
As you have probably noticed by now, good credit can add hundreds of thousands of frequent flyer miles and points to your travel portfolio every year. Without good credit you are going to miss out on all the big miles and points sign-up bonuses. Don’t get me wrong, you can still amass a large amount of miles and points without the use of credit card churning, but not near as many nor near as fast.
But not everyone has good credit, what are they to do? Maybe you have had credit for years but it has been tarnished to the point of not being able to get approved for new cards or maybe you are young and are getting denied because you have very little or no credit history. What are you to do? I have worked in the finance world for over a decade now and can tell you from experience that the majority of people fall into this less than stellar credit score category. I can also tell you that everyone in that category did not intentionally set out to try to get a low credit score (duh!) and almost all would like a high score. But how can I get my score up?
Tips to improve your credit score
1. Check your credit – If you haven’t already, the first thing you need to do is take a look at your credit file and find out what is holding your score back. Is everything accurate? Are there accounts on there you forgot about? Something you paid off that never got updated to reflect being paid off? Until you check your credit, you won’t know the answers. This will give you an idea of where you are and where to start in rebuilding your credit. The link below is one option to get a copy of your credit report, score, and a credit analysis free via a free trial offer that you can take advantage of and cancel without ever paying a dime.
2. Pay off credit card debt/Lower your credit utilization ratio – Notice I specifically said credit card debt. This will help more than paying down installment loans (obviously you want to do that when you can too!) because as you learned in Credit 101, the percentage of your total credit limits that you are currently using is almost 1/3 of what makes up your credit score! So that large balance that you carry may actually be hurting your credit score! Even if you are someone who only has 1 credit card and pays it in full each month, you may actually be damaging your credit if you are charging a lot and your statement prints showing I high ratio of your credit being used.
For example, you have 1 card and it has a limit of $5,000. Each month you charge between 2,500-3,000 to your card and then you pay it in full to avoid any interest. Seems like you should have perfect credit, right? Wrong, in this scenario you are actually hurting your score because when the statement prints you are shown as using over half of your total available credit. While making all your payments on time is great for your credit, you are still holding your credit back big time by letting such a large balance get reported.
As an underwriter, I spend my days analyzing people’s credit and finances, so trust me when I say this but the conventional wisdom that it is good to wait till your statement prints so that the activity reports to your credit is not necessarily true depending on your total balances to credit limits ratio (credit utilization). Yes, banks only report updates to the credit bureaus when your statement cycles but even if you paid it off before the statement printed, the banks will still report an on-time payment because banks will report in any statement cycle that has activity and most will report every month regardless.
So in the scenario given above, you would need to do 1 of 2 things to improve your credit.
1. get a higher credit limit to reduce your credit utilization or
2. pay it down a bit before the statement prints so that it reports a lower balance to the credit bureaus..
Keep in mind that this portion of your score is based on total balance vs. total credit limits on all credit cards and lines of credit combined. So one card with a large balance may not hurt depending on how much additional credit you have on others.
3. Pay everything on time!- while you cannot change the past, you can change the future. So going forward, make a promise to yourself to make at least the minimum payments before the due date. A common misconception is that there is a grace period after the due date. WRONG! You are late the 1st day after the payment is due, while you may not get reported as delinquent if you are under 30 days late, it is a bad habit and a costly one. You will be charged late fee’s and risk having your rates raised on your credit card.
4. If you don’t have a credit card, get one. You cannot build a credit history without credit. Before you get that new credit card make sure you have read Credit 101 so that you don’t end up making things worse. And remember, do not use more than 25% of your limit and never charge more than you can afford to pay in full!!! Also do not apply for a bunch of cards if you are just starting to build credit. One card will do for now.
5. Use that old card every now and then – Longer history is important to credit scores. If you don’t use your card for a year or two, the credit card issuer may close your account and then it will no longer be actively reporting to your credit report and closed accounts are not weighed as heavily as active accounts.
6. Dispute Negatives – Do you have anything negative on the credit report that you disagree with? An old cell phone bill that you challenged but in the end got reported as a collection item? Dispute anything that is in accurate or that you don’t feel was yours. Remember that the older the item is and the smaller it was, the less likely that the credit bureau is even going to bother verifying when you dispute it!
If you have any questions please reach out to me and I will give you my thoughts and any guidance I can.
I believe this is probably the part of the column where I say that I am not representing any credit agency or bank and that this information is based on my observations in my decade+ of working in the credit industry…. Legal disclaimer… blah blah blah.. And all that good stuff. 🙂
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