Got a low credit score? It’s probably costing you a pretty penny. Some of the benefits of high credit scores include low interest rates and fees, big bonuses, and greater credibility to your creditors. Start the New Year off strong by cashing in to these perks and raising credit score in 2016. Offering 7 ways to do just that, this article is your means to a great end.
[Read: Excellent Credit Habits to Boost Your Credit Score]
1. Closely check your credit report for errors.
In order to access better credit scores, cover your bases first and make sure there aren’t any mistakes in your credit report. AnnualCreditReport.com offers free annual copies of credit reports from all the credit bureaus. If you see something that doesn’t add up, contact your credit bureau right away to report it. Specifically keep an eye out for interactions that don’t look familiar to you, suspect credit limits (too high or low), and accounts you closed that are labeled open.
2. Get another credit card.
The trick to this one is not to use the extra card very often. Another credit card will make your utilization rate go down. How? By spreading the amount you spend over two or three credit cards. Credit card companies suggest a utilization rate of 30% or less, which can be difficult if you have one credit card that you use a lot.
That said, getting too many new credit cards at once makes it look like money is tight, which can cause you to lose your credibility with lenders. Think about your spending amount and strategically divide it among your cards so each has a good utilization rate. Add a card if you need one, but don’t get more than you need.
Raising Credit Score in 2016 with Two Credit Cards
Let’s assume you have a platinum card with a $5,000 limit, and your balance is $2,000. The balance is over the 30% recommendation for utilization rates. Lower utilization rates raise your credit score, so how do you fix this?
Credit Card 1
- $5,000 limit
- $2,000 balance
Divide and conquer! Get another card with a $5,000 limit, and start using it. Try to make your balances for each card equal, using roughly half of the current balance for your original credit card.
After a little while of use, this is what things should look like:
Credit Card 1:
- $5,000 limit
- $1,000 balance (20%!)
Credit Card 2
- $5,000 limit
- $1,000 balance (20%!)
Now your utilization rate for each card is within the recommended range, and your credit score will start to climb.
3. Pay credit bills more often.
If you’re currently paying monthly, try paying bimonthly. Paying more often, even if it ends up being the exact same amount, is beneficial to a better score. This is because balances on your credit report bring the score down. By paying more often, you increase the chance of having a lower balance on your card when the credit report comes around, and this keeps your score from dropping. Once your balance is lower, your utilization rate decreases. And as the last item shows, utilization rates are invaluable for raising credit score.
4. Increase your payments.
If you can’t afford to pay the entirety of your balance every month, at least make sure you’re paying a greater amount than the minimum. The more, the better. Again, lower balances and lower utilization rates raise your credit score, so pay as much as you can.
5. Pay down your card with the highest balance.
Maxing out isn’t good for your credit score, so start taking action now. Pay off any cards with balances close to the limit. If you have more than one card with a high balance, target the card that has the highest utilization rate. You can also look into getting a 0% transfer card and putting some of your balance on it.
Decreasing Credit Balance with a Transfer Card
If one or more of your credit cards is close to maxing out, try transferring some of the balance to a 0% transfer card to raise your credit score.
Benefits include:
- Decreased utilization rate
- Decreased amount of interest you’ll have to pay
- Small balance transfer fee
- Ability to transfer other debts besides credit card debts
Try not to lean on transfer cards too heavily, as repeated use can lower your credit score and credibility with lenders (see 2 – same principle applies).
6. Get to be an authorized user.
Raise your credit score by finding another account holder and having him or her make you an authorized user of that account. This boosts your credit and allows you to make purchases on that account, and it also places the account’s complete payment history on your credit report. If you’re looking for quick ways to raise your credit score, this is one way to do it.
Any mistakes the account holder makes can bring down your score, so make sure you’re teamed up with someone responsible. Also ensure that you’re responsible with the account, since the reverse is also true.
[Read: Mistakes that Affect Your Credit Score]
7. Keep it simple.
Pay your bills on time, keep your balances and utilization rates low, and don’t apply for new cards too often. Stick to these tips, and you’ll be setting yourself up for a high credit score for the long term.