Pay On-Time, Every Time
While no one is completely sure of the mathematical equation used to calculate credit scores, it is certain that the way you pay your bills has a big impact on your credit score. If you are 30, 60, 90 days, or more late with payments on bills that report back to the credit bureaus, you will see a drop in your credit scores. If you are consistently late, you risk having accounts closed and the negative information being reported on your credit reports for years to come. It is never too late to start getting on track. Automate your payments to make it less likely you will be late or miss making payments. Over a six month time period of perfect bill paying, you can see an increase in your credit score.
If you want to improve your credit score and history, stop overspending on credit. If you max out your credit cards or take them over the credit limit, your score will drop. Ideally, you should never charge something you can’t afford to pay in cash, but obviously, this isn’t always practical. To help improve your credit, use your cards for purchases you are sure you can pay off in full each month.
Using Credit Limit Increases to Help Your Credit Score
One strategy you may use to help improve your credit score is to get a credit limit increase. By increasing your credit limit, you will not only lower your credit utilization for that specific credit card, but you’ll also lower your total credit utilization. The more credit limit increases you get, the better your credit score will be.
Two Ways to Get a Credit Limit Increase
Some credit card issuers grant credit limit increases automatically after you’ve used your credit card responsibly for a certain period of time. You might notice an automatic credit limit increase after charging a certain amount on your credit card then paying it off. Automatic credit increases are unpredictable, so you can’t exactly wait for the credit card issuer to give you an increase if you’re actively trying to repair your credit.
You can also apply for a credit limit increase with your credit card issuers. The process is simple. Call your credit card issuer using the number on the back of your credit card and ask for your Credit limit to be increased. If your card issuer asks how much of an increase you’re looking for, keep it reasonable. Too high of an increase may be automatically denied. For example, if you have a $1,000 credit limit already, it’s more reasonable to ask for an increaseto $5,000 than $10,000. Your request may be processed over the phone or the creditor may send a letter letting you know the decision.
How Credit Limit Increase Requests Can Backfire
Some credit card issuers actually do a credit check when you request a credit limit increase. If the card issuer does a “soft pull” of your credit report, you have nothing to lose from requesting a credit limit increase since soft credit inquiries don’t affect your credit score and can only be seen when you check your own credit report. On the other hand, your credit card issuer may do a“hard pull” which does show up on your credit report and will affect your credit score for the next 12 months.
The negative effect of an additional credit inquiry could negate any benefits your credit score would get from the additional credit limit. And if your credit limit increase is denied, then your credit score has taken a hit and you’ve benefitted nothing.
So, before you request a credit limit increase from your credit card issuers, ask whether they’ll be doing a hard or soft pull of your credit report. Let them know you’re concerned about the impact on your credit score and request they use a soft pull, if possible.
Preventing Inquiry Negatives
As mentioned, you should never impulsively apply for credit or turn in multiple credit
applications in a short period of time. With so many inquiries counting against you in one time, additional creditors pulling your report will likely be concerned about all of your recent credit applications and be less inclined to approve a loan or line of credit. They will consider you too much of a risk and not responsible with your credit. Additionally, your credit score will drop a few points with each hard inquiry and essentially make you less credit worthy.
What you should know is that Fair Issac, the creator of the FICO score, has made some changes to how inquiries are viewed. Consumers have been upset that those being proactive about
repair in their credit are putting themselves in a bad position by shopping around for better rates. Now the rules are different for inquiries. In the past, there was no differentiation in why all the credit pulls were made. Now, there are exceptions that include:
• Ignored Inquiries – any inquiry for auto loans, mortgage loans, or student loans will be
ignored by potential creditors within 30 days of scoring.
• All for One Inquiries – any time inquiries for mortgage, auto, or student loans are made
within a 14 day time period will be counted as one inquiry.
While the rules are currently in place, it does not necessarily mean creditors will abide by them. It is still better to be careful with your credit by limiting credit inquiries and making your payments on time to keep boosting your score. The best deals and benefits come to those who maintain great credit and clear history reports.
There is no specific number of credit inquiries within a short period of time that is known to start damaging your credit. Every lender will take different factors into consideration so it is in your best interest to forgo new credit applications until you have worked to repair existing accounts.
Getting a Co-Signer to Improve Your Score
Ask a family member or friend to co-sign a credit card or a small loan with you. The person who co-signs with you needs to have good credit so the application will get approved. Realize that this person will have joint responsibility on the credit card account so whatever you do with this credit card will affect their credit and vice versa. So, if you go the joint application route, you need to trust the other person and they should trust you.
You don’t have to leave the account open forever, just long enough for you to rebuild your credit to the point that you can qualify for a credit card on your own. If you use your credit card responsibly and make your payments on time every month, it should only take 12 to 18 months to qualify for your own credit card.
Get a Secured Credit Card
There are two types of credit cards: unsecured and secured. You’re probably most familiar with unsecured credit cards that you simply apply for and if you qualify, you get the card. Secured credit cards, on the other hand, require you to make a security deposit against the card’s credit limit. Because secured credit cards typically don’t check your credit, they’re often the best option for post-bankruptcy credit repair.
When you choose a secured credit card, make sure you get one that reports to the major credit bureau. The best-secured credit cards also covert to unsecured credit cards within six to eighteen months of timely payments.
Diversify Your Credit Report
Lenders want to see a mix of credit on your report. There are many types of credit a consumer can have including revolving credit accounts such as credit cards and installment accounts like small personal loans. You may consider approaching your bank or local credit union and requesting a small loan. Be sure to pay the loan on time, each and every month to boost your score and history report.