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Nov 05, 2020 | By
How to Improve Your Credit Score

How to Improve Your Credit Score

There are certain times when it pays to have the highest credit score possible, getting a home loan is one of them.

The higher the score the better the interest rate. 

You can get a home loan without having perfect credit but if you know that buying a house is in your near future, start working on improving it now to reap the benefits.

The increase won't happen overnight. It takes time, it can take a few months. There are two solid options that can help improve your score. Let's get started!

Credit utilization

It's the amount of credit you've used compared to the credit limit. 

Maxed out credit cards cause credit scores to go down. It's best to have a credit utilization of at least 30% or less. Lower the better.

For example: if you're credit card has a $1000 credit limit and the balance on the card is $900, the credit utilization on this card is at 90%. The ideal balance would be $300, which would put you at 30%.

Experian has a great article on what credit utilization is. You can read it by going here.

In this article Experian states that credit utilization is an influential factor to determining your score, about 30%, and is only based on credit cards, not loans (auto, mortgage, etc).

Credit utilization can be managed in several ways, including:

  •  Paying credit card balances off every month or keeping the balances very low.
  •  Have credit cards that you don't use at zero balances. Do not close these accounts. Keep them open as it factors towards the utilization rate.
  • Requesting a credit limit increase, to help with the utilization.
  •  Opening new credit card accounts. Be careful about this one. Having too many credit cards opened in a short period can negatively effect your score, but it is only short term.

Increase credit limits

If you've had your credit cards for more than 6 months and have been making payments on time, most credit card companies will allow an increase on your credit limit.

The goal is to raise your credit limit on each card so that your credit utilization ratio can go down. 

Don't do this if you have problems controlling your spending. 

Credit limit increases can be requested online through most providers, or you can also call and request an increase. This is a really easy way to lower the credit utilization.

If your credit card has late payments, you most likely won't qualify for an increase. Credit card companies will reward those who have been making their payments on time.

Options for getting a higher credit limit

  1.  Sign into your account online, and look for an option that says credit increase, or limit increase.
  2.  Call the number on the back of your card and tell the rep that you'd like to increase your card limit.
  3.  Some credit companies will give their cardholders an automatic credit limit increase when been using their card responsibly. (no late payments)
  4.  If you have a positive credit history and have been managing your credit responsibly, you may be able to apply for a new credit card with a high credit limit. Keep in mind that this may decrease your score for a short period of time.

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