Improving Your Credit Score

Since I was 18, I have always been fascinated with my credit score. While I am not a professional financial advisor, I have done a substantial amount of research and have a pretty much perfect credit score because of the simple things I did over the years.

1. Get a Credit Card

When I was 18, one of the first things I did was applying for my first credit card. At the time, I remember having frustrating discussions with my peers that were afraid to get a credit card since it would cause them to pay more. I tried to explain that you only pay interest if you don't pay your card off at the end of the month, but they insisted that it was a bad idea.

2. Pay Your Bills On Time

One of the biggest factors used to determine your credit score is seeing if you were late on any payments. Even if you don't have enough to pay your bill completely off you need to at least pay the minimum amount for the bank not to ding your credit.

3. Credit Utilization

There are a couple philosophies I have heard about this. One is that keeping some recurring debt helps your credit score because it shows that you are paying your bills on time. Others say to just pay off everything at the end of the month to make sure you don't pay any interest. However, both sides agree that keeping your credit utilization lower than about 30% is key. This means if you have a credit limit of $10,000 you should only leave a total balance of $3,000 to remain at optimal utilization. My opinion is that the lower, the better, so I have requested higher limits on my cards, so I am usually only at a couple percentage points at most at any point in time.

4. More Accounts the Better

I don't know why so many people think this is the opposite. Your credit score goes up when you have more financial accounts. The way I think of this is that if lots of other banks trust a customer then another bank could trust you as well. My guess to why people are so confused over this is that some loans won't approve you if you have too many credit cards since you are a higher risk of spending more money.

5. Pay Your Credit Card Bill Early

Paying your bill two weeks before your bill is due to will help your credit score more than paying one day before. The theory is because when the credit company checks your credit utilization it will be much higher if it checks before you paid the bill.

6. Check Your Credit Score Often

I'm addicted to this, so I check at least every month. What you first have to understand is the difference between a soft inquiry and hard inquiry. A soft inquiry is a report that you could pull yourself using services like FreeCreditReport.com or CreditKarma.com. These inquiries have no effect on your credit and tend not to be as accurate. They will give you a heads up if there are any issues you should be aware of so you could fix it. Hard inquiries, on the other hand, should be avoided if possible. This inquiry much more accurate and pulls much more information. It is used by banks, landlords, or retail stores when checking to see if you qualify for loans or are safe to rent to. These inquiries could hurt your credit if there are too many in an 18 month period but if you need to run your credit multiple times you should do them all very close together instead of spreading them out since banks understand that customers need to shop around for the best loan.

7. Autopay

A technique I used to boost my credit was keeping an auto loan for a longer period than I needed it so that I could have the bank auto pay it. Of course, I was paying more interest but I was building credit that helped when I later took on a home mortgage when I bought my first place.

8. Keeping Accounts Open

This was one of my larger mistakes was letting my oldest account close. I didn't use one of my credit cards for a few years, and the account closed. This matters because the average age of accounts is something that significantly affects your credit score. Having old accounts is incredibly helpful even if you don't use them at all. When an account is about to close just use the credit card or ask the bank to keep the account open.

In Conclusion

While I'm not a professional for this subject, I am confident that this knowledge could be useful to anyone that is looking for new ways to establish, maintain, or fix their credit score. Sometimes it seems like the system is against you but if you could find ways to play its games you could find that it is not so hard to beat.