How to Increase Your Credit Score (Guide)
It is time to improve your credit score.
So, you want to learn how to increase your credit score. Well I am going to give you two pointers that should allow you to improve your credit score quickly.
How much (and how quickly) you can increase your credit score depends on your personal situation, and your personal credit history. And the more bad history you have racked up with creditors, the more difficult it will be to increase your credit score. However, you can always improve and if you are an average person (like me) you should be able to increase your score by 100 points in a year.
But before we get into my two suggestions, I’d like to review a couple additional bits of information:
If your credit score is very bad or you are just beginning to develop a credit history, I suggest applying for a secured card. These are cards where you invest an initial amount, which becomes your spending limit. These cards are secured because even if you fail to pay off the card, your credit card company can use your “down payment.”
In the past, I have applied for several secured cards that really helped me improve your credit score. They are not so useful if you have a mid-range score. But if you have no credit history, are unemployed, a student, etc. these cards are a great option.
Variables You Cannot Manipulate
I promise we will get to my suggestions soon. Briefly, I want to note that there are variables that determine your credit score that you cannot manipulate.
Average Age of Credit History
For example, you can't manipulate the average age of your credit history. To have high score on this variable, you’ll need to have held a line of credit for eight or more years.
There is no way to manipulate the ages of your credit lines. You will have to wait until eight years have passed.
To be clear: this variable measures the average age of your credit. If you have a credit card that is five years old and then you open another credit card five years later, you will reduce the average age of your credit. There is no way around this.
The Amount of Credit
Did you know that having a lot of credit is good for your credit score? If you have over fifty thousand dollars’ worth of credit, you are going to have an excellent score for this variable. This variable obviously affects your overall score. Unfortunately, this is not something you can change if you are struggling to pick up credit.
I think it is important to talk about the variables that you cannot manipulate, because a lot of financial hacks will tell you that you can improve your credit score by X amount of points overnight.
That is only half true. You can change your credit score more quickly than you might think, but overnight is a bit of a stretch. And, the amount of improvement some hacks promise is absurd. Credit scores are designed so that you cannot turn the boat around overnight. They exist to measure how trustworthy you are, and trustworthiness is measured in months or years not days.
And that is why there are variables that you cannot manipulate. I hope you understand the limitations built into the system, so you have an accurate understanding of what amount of change is possible.
But there are things you can do in the short term that will get you results!
Everyone knows how to increase their credit score in the long term: have a couple lines of credit, pay your bills on time, and be financially responsible. You are interested in what you can do right now to increase your score. Without further ado,
Short Term Strategies for Increasing Credit Scores
Decrease Credit Utilization
The very first thing you want to try is to lower your credit utilization to the smallest possible amount.
Credit utilization refers to the percentage of your credit line that you are currently using. Imagine that you have a credit card with a credit limit of $1,000, and you are currently using $600. You are using 60% of your overall credit, and that is way too much.
You can improve your credit score by reducing that $600 all the way down to $200 (and hopefully less).
Rule of Thumb: You want your overall credit usage to be between 0% and 10% of your credit limit.
So, 0% of $1,000 is $0 and 10% of $1000 is $100. You want to keep your credit usage between $0 and $100.
You are probably thinking, but I have bills larger than that.
Let’s make sure you are on the same page. You can spend more than $100, but you need to make sure that when you pay your credit card bill, you pay off enough that you have a $100 or less outstanding balance.
Preferably, you want to pay off the entire bill as soon as you may the purchase. That way your credit utilization will be zero. Pay off your credit card bills as often as possible or you will carry a balance that will eat up your credit utilization.
Do not leave over 10% of your credit unpaid because you will lose out on an opportunity to maximize this portion of you credit score.
Takeaway: If you decrease your overall credit usage, you will improve your credit score.
And these changes take place very quickly. If you don't believe me, try it for yourself. Get your credit utilization between 0% and 10% and watch your credit shoot up. This is one easy way to increase your credit score.
You can improve your credit score by becoming an allowed user on someone else's credit card.
Imagine that you mom has a high credit limit of $10,000 and she has held onto that card for ten years. If she adds you as an allowed user, the credit card company will report to the credit bureau that you use that account.
The payment history will be posted to your account. Her long history of making payments on time will positively affect your credit score. It is the next best thing to having your own credit card for ten years, and you having your own credit limit of $10,000.
Your score will increase as soon as the credit card company reports to the credit bureau. While payment history is the most important benefit of being an allowed user, there are:
Additional Benefits of Being an Allowed User
1. Increase the Average Age of Credit Accounts
Remember how I said you cannot manipulate the average age of your credit? That is true, but you can improve your average credit account age by becoming an allowed user on someone else’s card. The age of their credit will affect the average age of your credit.
You should know that the improvement will probably not be as large as you having your own credit card for ten years. Also, if the person who made you an allowed user misses a payment, they can damage your credit score.
Takeaway: By taking on the credit profile of someone with better credit than you, it is possible to quickly increase your credit score.
2. Decreases Credit Utilization
Another way being an allowed user increases your credit score is that it will decrease your credit utilization. Instead of having your one credit card with a $1000 credit line, you have your $1000 credit line plus the $10,000 from the card member that adopted you as an allowed user.
The credit bureau thinks you have eleven thousand dollars of credit, and this will improve your credit score.
As I said before, the reason it is important to have a high credit limit and low credit utilization,
Because these variables tell lenders that you are responsible.
Because these variables tell lenders that you understand how credit works and can manage a credit line.
I’ve always said that getting credit is like finding a wife. Girls are attracted to men who are not desperate, and who are independent (and do not need a significant other to feel fulfilled), but choose to settle down out of their own free will. Lenders are attracted to the same kind of people.
Lenders want to enter relationships with people they can trust in the long term; they look for people who are financially secure (read: not desperate). That is one reason why credit utilization is a variable credit bureaus measure.
If you seem like the kind of person who uses credit sparingly, lenders will be willing to extend you a credit line for five thousand dollars or to give you a loan for a house.
This is why it is important to have a lot of credit and low credit utilization. These two variables alone will help improve your credit score.
*The author of this article is not a CFP or financial expert.