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3 Incredibly Easy Ways to Increase Your Credit Score
Understanding your credit score can be complicated, but knowing how to improve it doesn’t have to be! While the credit bureaus use a complex series of calculations to determine your score, all you need to know are a few simple concepts in order to bump that score up.
The beauty of these hacks is that they don’t require you to pay anything additional towards your debt; these are simple, tried & true methods that can be used at any time to increase your credit score, which can be incredibly helpful when you’re getting ready to buy a house, a car, or take out a loan for any reason.
A higher score means better interest rates, so bumping your score up prior to applying for new credit means that you’re making your payments easier down the road! Be aware that your credit score can take a few weeks to reflect these changes, so you’ll want to give yourself plenty of time to make these adjustments before you need that higher score.
And now, without further ado, here is your list of 3 incredibly easy ways to increase your credit score!
Increase your Credit Limit
Whether you have one credit card or several, it’s time to request a credit limit increase! For anyone trying to get out of debt this may seem counter-intuitive, but this is actually the easiest and fastest way to raise your credit score without paying a dime. Let me explain: one of the biggest factors in your credit score is your “revolving” line of credit, or your credit cards. The credit bureaus use something called a “utilization ratio” to determine what percentage of your overall line of credit you are using, and this has a huge impact on your overall credit score.
Pretend you have a credit card with a $10,000 limit, and you currently have a balance of $5,000; this would mean you are using half of your available line of credit, giving you a utilization ratio of 50%. Now imagine you increase your credit limit to $15,000, but your balance stays at $5,000 – this change means that now you’re only using a third of your available credit, bringing your utilization ratio down to 33%.
The lower your utilization ratio, the better your credit score; the only exception to this is having a zero balance, because zero divided by anything is zero, and the credit bureaus want to see that you’re using your credit responsibly, so not using it at all actually hurts you. Most credit reporting agencies consider anything under 30% utilization to be good, with anything under 10% rating the highest; anything you can do to lower that ratio will bump up your score, and the easiest way to do that is to increase the limit (as opposed to paying a bunch of money you might not have available).
In the example above, if you were to increase your limit to $20,000 and still only had a $5,000 balance, then your utilization ratio would be at 25% and your score would improve dramatically! The trick here is to increase the limit without using any more of that available credit – this hack only works if you aren’t adding onto your balance and making it even harder for you to get out of debt! Most banks have a phone number you can call, and some even allow you to request an increase online; check out your credit card statement for information on how to request a credit limit increase on each of your cards, and watch your score go up!
Use a Balance Transfer
This credit hack is similar to the first in that you are increasing your credit limit, but this time you’re achieving the same effect by opening a new credit card. Again, this may seem counter-intuitive to the debt-wary crowd, but it can actually provide you with the opportunity to both raise your credit score and pay less in interest over time, so in my experience, it’s definitely worth it.
The important thing with this trick is not to choose just any card; you want to choose a card specifically geared towards balance transfers, so do your research before you choose (check out this post for additional information). Once you’ve decided on the best card to open for this purpose, transfer all your high interest balances to this card, and work on paying it down at a lower interest rate.
Again, this only works if you don’t add to your balance, so be sure that you’re not going to be tempted to use any of that extra available credit. I try to remind myself that a credit card is really just a high interest loan, so don’t open a new card if you’re just going to run up your balance! If you can use this trick responsibly, you’re saving yourself a ton of money and you get to reap the benefits of a higher credit score, but always be honest with yourself about what you can handle so that you don’t pay for it in the long run.
By opening an additional line of credit, you’re increasing your overall available credit and lowering your utilization ratio; this is key to boosting your score without actually having to pay anything additional towards your debt. Opening a new line of credit dings your score temporarily, but the benefits here far outweigh the cons. Not only are you increasing your credit limit and lowering your utilization ratio, but you are adding to the number of accounts you have, which also boosts your score over time.
Now that your credit card balance has been moved to a card with a lower interest rate, your payments are going to take a bigger chunk out of the principle balance, and it will take you less time (and less money) to pay down your balance. Using this hack has already saved me hundreds in additional interest, and I encourage anyone working towards debt freedom to consider this as an option for reducing your interest payments.
Find & Remove Errors on Your Credit Report
This one doesn’t apply to everyone, but you would be shocked at how many people discover errors on their credit report, so it’s always worth checking! Whether you have a popular name or someone else lived at your address after you, there are a million ways that information gets reported incorrectly to the credit bureaus. The only way to find out if there are errors on your report is to look; I personally check my credit weekly on Credit Karma, but there are a ton of options for viewing your credit report so take advantage of one of them and do some digging to find out if anything is amiss.
The easiest way to boost your score using this method is to get any misplaced derogatory marks removed from your record. If you cancelled your cable back in college and they sent you to collections even though your final bill was paid, it’s time to chase down that company and have it removed from your report. If someone with a similar name defaulted on their student loans and somehow that wound up on your report, make some calls to get it taken off – once these errors get resolved, you’ll see a significant increase in your credit score, and won’t have them creep up to haunt you later in life.
Taking a proactive approach to your credit report and making sure it only reflects your actual history means that you can easily spot mistakes in the future as well. If your credit score ever dips without you making any changes, look into the reason and make sure you haven’t been unfairly burdened with someone else’s slip-up.
While the real key to good credit is paying responsibly over time, these simple techniques can help to boost your credit score without paying a dime, and get you in the mindset of taking an active role in your money management. Knowing what changes affect your credit score will help you make informed decisions about your finances, and educating yourself is half the battle when it comes to getting out of debt.
Now that you know these incredibly easy credit hacks, what are your favorite tips and tricks to improve your score? Head to the comments section to share your favorite credit advice!