Posted by Anna Traugh on April 25, 2024
Your credit score is one of the most important tools that you have in your financial toolbox. Having a high credit score shows creditors that you have a history of paying off debt on time. This makes you more reliable in their eyes, and they’ll be more likely to lend to you. In fact, they may be more likely to lend you more money and at a lower rate which can save you hundreds or thousands of dollars. We all understand the importance of paying our bills on time, but here are a couple of additional ways to boost your credit score in simple and effective ways:
Credit Utilization
Rule of thumb is to use less than 30% of your limit on each of your credit cards. The easiest way to achieve this is simply to charge less to your cards each month. However, many of us charge everything to our cards (to get the rewards!) and pay them off at the end of each month. In that case, charging less to the cards isn’t really the best option.
An alternative is to contact your credit card company and ask them to increase your line of credit. Many will be happy to do this so that you spend more money. Others will ask you to confirm an increase in income first. Once your credit limit increases, you can spend the same amount as before, but it will equal a smaller percentage of your allowed amount.
Another option is to instead make two payments to your credit card each month. For example, if you charge $4,000 each month, pay $2,000 mid-month and the final $2,000 at the end of the month. Doing so will ensure that your credit card statement never shows the full $4,000 amount so your utilization will seem to have decreased.
Communication
Paying your bills on time is necessary for a high credit score. But what about when one slips by your notice and before you know it, you’re over 30 days late on a payment? The answer is to get caught up with your payments immediately and also contact the creditor to see if they would be willing to no longer report the missed payment to the credit bureau. If it’s your first missed payment and you have a good track record, they may consider your request. It’s worth it to make this phone call as even one late payment (of over 30 days) can stay on your report for up to seven years.
Communication is also important if you notice an error on your credit report. Contact the credit bureau immediately and provide evidence of the error. The bureau will have up to 45 days to investigate the dispute and make a judgment.
Timeline of credit
Creditors want to know that you have a history of paying off debt on time. That’s why an older credit card may boost your score more than a new one (assuming you spend the same amount on each and pay them off fully each month). This is true of other lines of credit as well such as mortgages and student loans. It’s beneficial to analyze your lines of credit on an annual basis. If you have a longer line of credit that is close to being paid off (such as student loans or a car loan), consider opening a credit card a few years before your loan is completely paid off. That way, when the first loan ends, you still have another line of credit with some history attached to it.
By following these steps, making on-time payments, and varying the types of credit that you utilize, you should see your credit score improving. The result may be receiving reduced interest rates on future loans, qualifying for higher limits on loans, and most importantly, peace of mind that you’re not falling behind on your debts.
Written by: Kristen Vernace
Disclaimer: This post is for informational purposes only and is not to be considered investment, tax, or financial advice. Cornerstone does not and cannot guarantee the accuracy or applicability of any information presented in this post regarding your individual circumstances. Please review your personal situation with your tax and/or financial advisor.
