Posts Tagged credit score

When working to raise your credit score, it’s not enough to just get a bunch of new credit cards.  Your score, for the most part, is gauged on how you use your credit account instead of just their availability.  It goes without saying that you’ll need to use the credit responsibly, if your FICO score is going to benefit from it.

Here are a few guidelines to make sure your credit card use nets you in the positive.

1. Make small purchases every month

Use your credit card for small purchases on a monthly basis to keep it active.  If you’re wary about using your credit card (afraid of going into debt), assign it for regular on a controlled expense.  For instance, use it to charge your monthly electric bill, instead of paying cash.  Just use the cash as payment for the card - it works out the same way, while allowing you to build up your credit at the same time.

2. Never carry a balance

Carrying a balance, especially large ones, always hurts your credit ratings.  If you want to derive the maximum benefits on your credit score, pay off any charges you incur every month.  As such, never charge anything more than you can afford to settle within the same month.

3. Use no more than 20% of your available credit

Even when you pay your balance in full month-to-month, keeping your credit card utilization to below 20% will help your score immensely.  While the idea of earning rewards points can be tempting, you’ll need to put a cap on your usage if you want your credit score to benefit.

It’s been proven many times over that using a low credit limit credit card can help boost your credit score. As long as you make sure that the credit company reports to the three credit agencies before you sign up, then it’s only a matter of using it responsibly before seeing your credit ratings experience some much-needed improvements.

Experts estimate that two years of good credit card maintenance should be enough to show significant improvements in your credit report. If you have a score below 660, these three things should help you see moderate positive changes.

1. Paying every bill on time

Late payments, even for just one month, can do more than raise the interest rate in your credit card. It can prove enough to bring down your score considerably. A year or more of timely payments, however, should do wonders for your credit score.

2. If you have multiple cards, pay down the ones that are maxed out first

Points are deducted from your credit score any time you charge more than 50% of your credit card’s limit. It can mean even more deductions when you keep a running balance beyond that limit for an extended period of time.

So if you can, pay down the cards with balances over 50% first to avoid the penalty.

3. Keep all credit cards active, even unused ones

Cancelling a credit card (or any line of credit for that matter) goes negatively against your credit ratings. A large part of your credit score is based on how high a percentage of your available credit you are currently using. When you cancel a credit card, your available credit goes down while your existing balances remain the same, effectively reflecting a high percentage of usage.