How to Boost Your Credit Score
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Maintaining a good credit score is one of the core pillars of a stellar system of personal finance.
The better your score, the more likely credit card companies are willing to increase your credit limit. Higher limits means more freedom, which gives you the leverage and ability to start doing bigger and better things with your money.
The issue is, achieving a great credit score is no easy feat. Credit companies are extremely strategic, particularly after the 2008 financial crisis that was ironically created by predatory credit companies and rating agencies.
Thanks Wall Street.
Good credit card companies like Visa and MasterCard aren’t going to let your average John Doe start spending on a credit card without a very thorough application process and complete financial audit.
This becomes increasingly difficult the younger you are and the less financial experience you have.
I learned this the hard way. With little financial history and no credit usage, it took me months to navigate and secure the right card I was eligible for.
Once I got my first credit card, the path to good credit quickly revealed itself as long and complex.
Here are some of my best practices for boosting your credit card score.
Credit Card Co-Authorization
This is one of the oldest tricks in the book. If you are young, ask your parents to co-authorize you on their credit cards.
Not only will you be allowed to spend and use their credit cards (within reason), but you will start building credit for their purchases and credit utilization as well.
Think of it as just tagging along for the ride.
Only by tagging along you are building out your credit score. You never even have to spend a single dollar and can build the same credit from their purchases on the card you are co-authorized for.
A great, easy way to start building your credit.
Limit and Be Strategic With Credit Inquiries
This is something I personally failed at when I began my credit card endeavor.
Be prudent and strategic with making any credit enquiry. An inquiry can assume many forms but more common inquiries include checking your eligibility when applying to a new credit card company or researching your personal credit card score.
I made a lot of these enquiries when I first started out and your credit rating can often be negatively impacted by excessive inquiries. Turns out mine was.
Always double check that whenever you make an inquiry, your credit score won’t be negatively impacted.
Most of the time, these newer platforms will allow you to check your credit utilization and eligibility without harm. I use Experian and they fall into this category.
Have Multiple Lines of Credit
Having multiple lines of credit is always a good idea when it comes to bolstering your credit score.
Don’t get me wrong, having ten credit cards is probably a bad idea.
Having 3–5 different credit cards is usually considered the sweet spot for your average credit user. Credit card rating agencies and companies like to see diversification, meaning you are approved for and use multiple types of cards.
This provides some reassurance that you are actually able to pay credit owed across multiple cards and purchases.
Be strategic in your selection. Choose credit cards that offer your diversified benefits and rewards. Most importantly, choose cards where you know that you will likely be accepted. Getting a credit card application rejection almost always decreases your credit score.
Ensure that you have multiple lines of credit, but apply for credits that you know you will likely be approved for.
Keep Your Utilization Under 33%
Credit companies and rating agencies love lower utilization rates. They want you to spend, but not exceed a threshold where they know you can reliably pay off your bills.
This magic number usually lies at an upper limit of 33%. Pretty simple. Don’t spend more than a third of your limit on one card at one time.
Once you go over this number, pay off your credit bill and start over. Making more frequent payments while keeping your credit utilization low is a surefire way to bolster your score.
Spend, Spend, Spend
Credit card companies make money off of your purchases. When you purchase an item via credit, they get a very small piece of the pie.
The reason they are so profitable is because they get lots and lots of pies. Every day. Millions of them.
Credit card companies and rating agencies want you to spend. And you should too. The more you spend, the more often you can pay your bills.
The more often you pay off your bills, the more reliable your credit portfolio appears. The more reliable your credit portfolio becomes, the more eligible you are for higher spend limits and the better your credit score will be.
It’s a very linear game. Spend, pay, boost credit score. Rinse and repeat.
Time is King
Simple enough. The longer you have a line of credit open, the more reliable your portfolio will be.
With more time under your belt, credit card rating agencies attribute more security to your portfolio and your ability to make payments.
This is often why when you open a new line of credit, your score may initially drop. Especially if it is replacing an older, consistent line of credit.
This ties in perfectly with the previous tidbit. The more you spend and over a longer period of time, the more likely your score will improve.
Credit is a tricky business and a very slippery slope. Follow these simple steps and you will likely see your credit score rise over time.
Be prudent, strategic, and smart. Practice responsible spending habits and utilize your credit. Above all else, make sure you always pay off your credit.
Incurring debt not only hurts your credit score, but often has a snowball and cyclic effect that can spiral out of control.