Improving a credit score is a game that every American is going to have to play to get better rates on loans for big ticket items like cars and mortgages. Improving a credit score involves using a lot of little strategies and paying close attention to spending. Its hard playing a game when the referee doesn’t give you the rules, but here are some guaranteed tips on boosting your score.
1. Use your credit card for small purchases and pay it off every month
The easiest way to improve your credit score is to use a credit card every month, and pay it off at the end of the month – on time. Paying on time every month shows that you are responsible. Paying more than your minimum is also a plus, and not only will you pay less in interest, your credit score will go up. I find that using a card that requires you to pay it off every month, like most of the American Express cards, are advantageous.
2. Read All Mail From The Credit Card Companies
They might be telling you that they are going to shorten your grace period, or change your account due date. If you’re off by just one day, you’re late, your interest rate defaults, and you can get a hit on your credit score. I had one client that was late on his payments for 5 months and hadn’t even noticed that his interest rate had defaulted to 29%. All because of a small letter in the mail with fine print that he didn’t think he needed to pay attention to. After all, he was making his payments on time, or so he thought.
3. Never Max Out Credit Cards
Carrying a high balance on your card shows that you are topped off financially. Only paying the minimum adds to that assumption. Keep your balances low, to less than 10-20% of the card’s limit, and this will boost your score.
4. Carry More than One Type of Credit Card
Having different types of credit and paying them on time boosts your credit worthiness. Having only 1 credit card used to be admirable and a sign of self restraint and financial responsibility. But a high credit score often requires you to play the game. Its a strategy – so take out another credit card if you only have one. I recommend one American Express card and one VISA or MasterCard. The VISA and MasterCard are more widely accepted, and you can carry a balance for absolute emergencies. Alternate the cards by month or season – using only one. You have to use the credit to improve your score. Having the card sitting stagnant with a zero balance does nothing for you, in fact now it could hurt you since inactive cards are getting charged an inactivity fee, or are being closed by the lender – which inevitably hurts your score. Therefore, buy a latte or pack of gum and charge it to your card. Pay the balance every month, and you’re good on the balance end. Darn game.
5. Have Multiple Types of Credit
Credit cards are the main credit building tool, but to have a better score, your credit needs to be well rounded. Other types of credit are store credit, personal loans from banks, mortgages, car loans, student loans, etc. Take out a consumer loan, and pay it off before its due to avoid paying too much just for pulling out the loan. That boosts your credit. If you are in the market for a car, put down a big down payment, and finance the rest (even if you can afford to buy it outright). Its all part of the credit score game.
Great info! Thank you!