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5 Ways to Improve Your Credit Score

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#finance #financialtips #financing #goals
Published
06/08/2022

Your credit score is a key metric used to determine whether you can obtain a loan, mortgage, or other credit. In the ever-changing world of finance and lending, your credit score is updated regularly. It can also change over time if you have a stellar track record of paying your bills on time and in full or if there are any instances where you didn’t pay something on time or in full. 

The lower your credit score, the harder it will be to secure loans in the future. But don’t despair. Improving your credit isn’t as hard as one might think. 

Here are five practical ways you can improve your credit score that will make a difference right away:

1.   Pay Your Bills on Time Every Month

Though it might seem obvious, you’d be surprised how many people don’t pay their bills on time. The New York Times reported a staggering 87% of people with credit problems were late with at least one payment during their period of financial trouble. 

If you want to improve your credit score, paying your bills on time is a priority. The first and most crucial step is to set up automatic payments. Once you get into the habit of paying your bills every month, it will become effortless. 

Along with setting up automatic payments, you should also make it a point to pay your bills as soon as they are due. You may be aware it’s considered best practice to pay your mortgage or other loans first and then the remaining amount on all other bills, but you should also follow this rule for credit cards.

2.   Request an Increase in Your Credit Limit

To improve your credit score, ask your creditors for an increase in your credit limit. You must be current on payments and have a good credit score for this to happen. If your credit score is good, you will unlikely be denied. 

Be careful with this tip, as too many applications for an increase in your limit can hurt your credit score. You must have a good reason for needing an increase in your limit, such as a large purchase you are planning on making. This will show your credit card company that you have a legitimate reason to be approved for an increased credit limit, and this will improve your score.

David Boyd from CreditCardCompare.com.au recently spoke with News.com.au and provided insightful advice on managing credit card limits to optimize credit scores.
 
"Requesting an increase in your credit limit can be a strategic move to enhance your credit score, provided you're in good standing with timely payments and already have a solid score."
 
"This tactic can improve your credit utilization ratio, a key factor in credit scoring algorithms. However, it's crucial to approach this strategy judiciously. Excessive requests for higher limits might signal to lenders that you're overextending financially, potentially harming your score."
 
"It's essential to demonstrate a valid reason for the increase, like funding a significant purchase, to underline responsible credit management. This justifies your request and can positively impact your creditworthiness."
 
3.   Keep a Low Credit Utilization Ratio

Your credit utilization ratio is the amount of your credit limit you are currently using. A credit utilization ratio of no more than 30% is ideal. If you are using more than 30% of your credit limit, it could negatively impact your credit score. 

If you want to keep a low credit utilization ratio, maintain a balance on your credit cards that is below 30%. This will help ensure you are not over-using your credit and ultimately making it more difficult for you to get approved for loans in the future. You can check out how these credit cards compare to help you choose the best credit card for your transactions. 

4.   Don’t Carry a High Balance on Your Credit Cards

While it may be tempting to go out and make purchases with credit cards, this often comes at a price. Credit cards help people arrange for things like mortgages and other long-term loans, but they are not meant for day-to-day expenses. It is important to remember that credit cards are loans, not cash. 

They allow you to use your credit line to make purchases and pay off your loan. The loan will be reported to the credit bureaus, and if it is not paid off, it will be reported as a negative mark against your credit score.

5.   Negotiate with Your Creditors

Credit cards are constantly being redrafted, so it is worth keeping tabs on the current market value of your cards and seeing if you can get a better deal. You may be able to negotiate a lower interest rate or lower monthly payment amount. If you are constantly staring at the clock, you may want to consider calling each of your creditors and requesting they lower your interest rate or extend the time you have to pay the loan.

While it will certainly take some effort on your part, it doesn’t have to be complicated. By following these five tips and improving your credit score, you will be one step closer to achieving your financial goals.

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