Looking to improve your credit score? Those with the highest FICO scores understand there are proven practices that will ensure you will look good to your current and future creditors. As you know, there are three major credit reporting agencies, Equifax, Experian, and TransUnion, and all likely have different information on their respective report about you. That said, with scores ranging from 300 to 850, you want to aim to have excellent credit (720 and above).
How do you get there? Follow these simple tips.
Apply for credit only when you need it.
If you are just starting to build or rebuild credit, the last thing you can do that will benefit improving your credit is to go on an application spree. An “app spree” is when you apply for numerous accounts all within a very short time frame (24-72 hours), hoping for the best. While there are message boards on the internet that for years have praised this practice, the fact of the matter is if your credit report is razor thin currently, you likely will be looked at as a risk by top tier banks. Each time a lender pulls your report, you will have a credit inquiry show up. Depending on the type of credit you are requesting, the inquiry can weigh heavier than others. For instance, if you are mortgage shopping, it is to be expected you will have various lenders within a short period of time (let’s say two weeks for this example) pull your report. Contrast that with if you applied for five credit cards in two weeks. Even if you were somehow approved for all five cards, your score will take a nosedive in the wrong direction. The worst case scenario of course if you get your credit pulled all those times and get denied for most/all.
If you don’t need new credit, simply wait. Let the existing credit on your report mature a bit, getting some on-time payments to post, and showing your current lender that you are responsible. This will also help when it comes time to request a credit line increase (more on this later).
Related: The 5 Best Secured Credit Cards
Choose the right credit cards for you.
This is where you have to be honest with yourself. If you currently have bad credit, it may not be a good idea to apply for the Chase Sapphire Reserve card today. You not only will likely get denied, but in the process you just wasted a credit inquiry that you could have used on a card that gave you better chances to obtain. Understanding your current credit history is paramount, and by keeping track of when your existing creditors report, the balances that get reported, the payment history status, and an estimated score can all be obtained with a free monitoring service like CreditKarma.
Once you know where you stand, then you can strategically apply. If you travel often, you need to do your homework on the best credit cards for travel with a good rewards program and likelihood of approval.
Greatness takes time.
Having a thin credit file is tied to having a limited credit history. If your average age of account (AAoA) is just 1 year, for example, it is likely some of the top shelf credit accounts you are eyeballing will decline you. No matter your current income or repayment history, some lenders are more conservative than others, and they prefer not to issue a premium credit card to someone who has limited history. This is often why you see people enter the Chase ecosystem with the Freedom card, and then after some time move up to the Sapphire. If you prefer Amex, there are some who start off with the Gold revolver, and eventually are able to work up to securing the Platinum. Any accounts you close won’t affect your account age immediately. Those closed in good standing will remain on your report for up to ten years, however we suggest if your card does not have an annual fee, and it’s been open at least five years, make one to two small purchases annually on it simply to show activity, but never close it.
Don’t Carry Balances.
It is true that those with the highest FICO scores do not carry balances. They may have access to hundreds of thousands of dollars in revolving credit, however they use what they need, and pay it off. On the contrary, those stuck with decent credit (low 600s), carry on average a balance hovering around $3,600 per a recent study by Credit Sesame.
Building credit is much like staying on a diet. It takes self-control and discipline. The reward is great for those who can spend only what they can afford to pay back within 14 to 21 days.
Pay on time, every time.
If you can’t pay the entire balance in full, always…always…always make your standard minimum payment. Payment history is critical to maintaining and improving your credit score. One late payment (30 days or more past due) can impact your score significantly. If your income is predictable, consider signing up for automatic drafts from your checking account. If you have irregular income, consider paying your credit card down or off each week. On weeks where you can’t pay the balance off, put the card up in your drawer until you catch up. Either way, don’t let your payment slip past due if you can avoid it.