This is a sponsored post from Lexington Law. All opinions are 100% our own.
Who doesn’t want to have an excellent credit score? The importance of having a good credit score is key to getting the very best interest rates and loans. Having a high credit score can save you tens, if not hundreds of thousands of dollars over your lifetime. If you are planning on buying a house in the near future this article will be packed with knowledge for you to increase your credit score.
There are a few big name credit scoring companies FICO, Equifax, Experian, and TransUnion. Credits scores are rated on a scale from 300 to 850. Generally speaking, scores higher than 750 are considered excellent credit scores.
If you don’t know your credit score already you can grab it for FREE from Credit.com. Once you get a hold of your credit score you can start taking steps to increase it.
What Is A Credit Score?
Simply put, it’s a 3-digit number that “grades” you on how trustworthy of a borrower you are.
A lower score generally indicates what they call “poor credit-worthiness,” meaning they don’t trust that you’ll pay the minimum payments, won’t make your payments on time, and/or won’t pay back the entire balance at all. A higher score tells lenders that you are excellent at paying your debts in a timely fashion and by at least the minimum payments if not by higher amounts.
Your credit score (un) fortunately makes it easy for lenders to choose whether they will lend to you or not, how much they are willing to loan, how much interest they will charge, etc. So it really is in your best financial interest overall to have the best credit score possible.
How To Increase Credit Score Quickly
1. Never Miss a Payment:
By far the most important factor in your credit score is your payment history. Lending companies want to know that you are going to pay them back on time, every time. Missing just one payment can have a huge negative impact on your credit score.
To ensure you are never late or miss a payment you can sign up for auto bill pay. Another great strategy is setting up a calendar of when your bills are due. We personally use Mint which is a FREE fully-automated budgeting software. Mint allows you to connect your banking and credit card companies to your account. Doing this automatically sets up alerts and reminders when bills are due. Another great FREE software to manage your bills is Personal Captial.
This is what we do to never miss a payment. When we get a bill, we pay for it. For example, our garbage bill comes every two months. Normally we open it and leave it on the kitchen table for a week, it’s a terribly bad habit! Yes, you can leverage money by waiting for the last minute to pay bills but you will definitely increase your chances of missing a payment altogether.
2. Watch Your Credit Card Utilization Ratio:
According to Lexington Law, your credit card utilization ratio is also one of the most important factors in your credit score. You can calculate your utilization rate by dividing your total credit card balances by your total credit card limits.
Maintaining a credit card utilization between 0-20% is your best bet. Paying down your credit card balances multiple times per month can help keep your utilization ratio down if you have low credit limits. Many credit card companies will allow you to set up text/email reminders after your balance reaches a certain limit.
Another great option if you have had your credit card for a while is asking for a credit limit increase. We actually do this once or twice a year with great results. Once you have proven to be a “good” customer, credit card companies will normally grant increases. Make sure you are responsible enough to handle the increase in your spending limit. You don’t want to increase your credit limit if it is going to cause you to spend more.
Carrying credit card debt can be some of the worst debt you can have. Get rid of it!
What if you stop using a credit card? For example, we took out a credit card with Littman’s Jeweler for Brittany’s wedding ring to get a large discount. After we made the purchase with the credit card, we paid it off in full within a week. Instead of closing this account we cut the card in half and keep the account open. Keeping the account open allowed us to keep the available credit to help maintain a low credit utilization.
3. Keep Your Balances Low:
People with FICO scores of 800 or higher have an average total revolving credit balance of $1,446, compared with $2,040 for the U.S. population overall (who have an average score of 700).
What’s the habit to learn? Maintain control over your spending, charging only what you can afford to pay in full each month on your credit cards. Don’t fall into the trap credit card companies want you to. Not carrying a balance from month to month is the only way to guarantee you never have to pay their high-interest rates.
If you are struggling with credit card debt and a low credit score Lexington Law can help. They have helped hundreds of thousands of clients take action and repair their credit, since being founded in 1991.
4. Start Slow, Start Early, and Start Getting Paid To Use Credit Wisely:
I was blessed to grow up with parents that were so financially fit, and willing to teach.
My parents got me a credit card in high school. You might be thinking “what the hell were they thinking?” Well, it was not only an amazing learning experience they could control, but it got my credit score off to an amazing start.
I learned to be responsible with my money before heading to college. The credit card was used for gas to and from school and that’s it. I made sure to always maintained a low credit card utilization ratio and always paid on time. Because of this, I was able to build my credit score above 800 at the age of 26.
A good habit to get into is opening up a credit card to pay for small manageable purchases at first.
Some great examples would be groceries, gas, cell phone, internet, etc. A great way to start would be to only use it to purchase 1 or 2 things in your monthly budget. Everyone has “fixed” bills they have to pay for on a monthly basis. Why not earn cash back or mileage rewards and build your credit at the same time?
“Establishing credit early is important; the longer your credit history, the better your score can be. This allows credit bureaus to view a longer sample of your past transactions. Based on these, they are able to predict your future actions and potential risk”. – Lexington Law
5. Don’t Apply for Credit Often (& Leave Credit Accounts OPEN):
Credit score companies see customers who apply for new credit lines often as “risky”. Every time you apply for a new line of credit your score gets an “inquiry” stamped on it. The appearance of many inquiries all at once can decrease your credit score significantly.
Having a good mix of account types does help increase your credit score. People with FICO scores of 800 or higher have an average of 10 revolving credit line. A good rule of thumb is waiting at least 6 months between opening up a new line of credit.
On the flip side of that is leaving your accounts open, rather than paying off a credit card and closing it. The longer you leave an account open, the higher your overall credit score “age” can increase. This is another factor that can drastically help increase your credit score with literally no effort on your part!
6. Pick the Right Credit Card Company:
Look to sign up for credit cards with big companies that have good reward programs that also follow your spending habits and interests. What is the point of getting a credit card that offers travel miles if you don’t travel?
Since we love to travel we use Capital One Venture to earn 1.5 miles per dollar spent. They also have an awesome sign-up bonus of 50,000 miles free!
Cashback credit cards are always popular as well. We have used Discover Card in the past and loved getting cash back to put towards our monthly statements. Again, don’t get caught up in the reward programs as “saving” you money. Use your credit cards for your benefit, not your downfall.
Cards that have an annual fee might not be worth it. Always do your research and calculate if having an annual fee is worth it in your situation to receive the premium miles/cashback.
You can always use a company like Credit.com to compare and search for cards.
7. Monitor Your Credit Score Often:
We recommend checking your credit score at least once every quarter. Monitoring your credit score on a regular basis will make you aware of any negative changes and allow you to make adjustments to correct it quickly.
The main reason for this regular habit is to keep a close eye on how you’re doing with your efforts to increase your score, as well as to make sure you don’t have any identity theft problems that could be hurting you.
Monitoring your score also allows you to gain an emotional boost when you start seeing your credit score increase significantly.
You can head over to our partner Lexington Law and receive your FREE credit score today.
How To Increase A Credit Score to 800
This is the simplest thing you’ll read all day: treat your credit as if it were cash.
Don’t borrow more than you can reasonably pay back in a month.
Don’t spend more on your credit card than you ALREADY have the cash to pay for (you’re only using your credit card to get rewards or points).
And last, take a methodical approach to your efforts on rebuilding a lower credit score and don’t go it alone. Sign up with our partner Lexington Law today!