Strategies for Increasing Your Own Credit Score

Credit scores state credit risk as a single number.  Lenders use your credit score in the process of determining how much risk you pose to them if they extend credit to you. 

It might surprise you to learn how your own actions affect your calculated credit score.  For example, were you aware that closing an account when it still holds a balance will lower your score?  It’s true!  Read on and learn about which actions affect your score and what you can do to raise it. 

Make every payment on time

The easiest single action that you can take immediately to increase your score is start making every payment on time, if you are not already.  A late payment has the greatest negative impact on your credit score when compared with all the factors.  If you fear not being able to make a monthly payment, you should contact the respective lender instead of wondering if that late payment will be noticed.  Lenders are typically willing to make payment arrangements with you or even waive a payment if you contact them before your payment is late.  

Most banks offer online bill paying software which allow payments to be sent electronically and can be set up to make automatic payments each month.  If you have access to this type of service, it’s a good idea to use it for your monthly payments to ensure they are paid on time.

Avoid maxing out credit cards  

A card balance that is at or even close to the maximum limit has a negative impact on your score.  Anytime a lender sees a high balance to limit ratio, it appears that you are accumulating an unsafe amount of debt.  A good guideline to follow is to maintain all your card balances so that they do not exceed 30% of the actual card limit.  For example, if your credit limit is $1000, then you should really never charge more than $300 on that card.  This might seem a little strange, but it shows that you are using your credit wisely and responsibly.    

Do not close any card unless its paid and its no longer beneficial to carry it

A longer history with one lender is better than lots of short histories with various lenders over the same amount of time.  It’s a misconception that you should close a card if you are not using it every month or no longer need to use it.  You do need it for a good credit score.  When other lenders see a long card history with another creditor that has a low to no balance, it looks like you are responsible with the credit granted to you.  Therefore, you should always try to keep your oldest accounts open, especially in the case where there is no negative impact on you for keeping it, even when you won’t be using it. 

It is also a bad idea to close any card that still holds a balance.  When you close a card, your credit limits is reduced to zero yet there is still a balance.  The end result is that the card appears maxed out and will lower your score. 

Limit the number of credit applications

Avoid submitting credit card applications spontaneously.  Nowadays, plenty of retail chains instruct every store clerk to offer their store credit card.  It might seem like a great deal to save on a certain percentage off your current purchase and then cancel the card, however this is also detrimental to your score when done numerous times.  The application causes an inquiry to be recorded on your report, and with each inquiry from a credit application your score decreases a small amount.  After a few applications, your score can be decreased by a significant amount.  It is always wise to never fill out any credit application unless you have done your homework and seriously considered whether you need it. 

However bad a credit score might seem, it will not stay that way forever.  In fact, a credit score frequently changes from month to month.  By taking the right steps today, it is possible to begin improving your score and enjoying the benefits of a high credit score.