5 Proven Ways To Boost Your Credit Score
3. Reduce the amount you owe.
Lenders want you to borrow, but not too much. Typically, lenders start to raise their eyebrows when you use more than 30% of your available credit on all of your credit cards. This is measured by what’s called a credit utilization rate – how much credit you’re using divided by the total amount you have – and a low means you’re probably doing a good job of budgeting. Credit usage is 30 percent of your FICO score.
And having too little business can also be a problem, Griffin says, because if you need a loan, the lender will want to see that you’ve used credit wisely in the past. Even if you don’t have a credit card, you can request that utility bills or other regular bill payments be added to your credit report.
For fixed rate loans, such as home loans or car loans, lenders look at your debt-to-income ratio, which reflects the share of your annual income that goes to pay down debt. It is the amount of your monthly debt payments divided by your monthly income. Your debt ratio doesn’t affect your credit score, but if it’s too high, you might not receive a lot of credit card offers and it might be more difficult for you to get a car loan or a mortgage.
If you have a card that is maxed out, or about to be maxed out, then pay it off aggressively. You might even consider diverting money from your savings to pay off your credit card. All other things being equal, paying off a credit card that charges 18% interest is roughly equivalent to earning 18% on an investment.
4. Don’t rush to close old accounts.
The age of your oldest account, the age of your most recent account, and the average age of all your accounts represent 15% of your credit score. As long as you don’t pay an annual fee on an open account, it might be worth letting it collect dust. The longer you have credit, the better your score.
5. Don’t apply for credit too often.
Getting a new card every now and then shouldn’t hurt your credit, like getting a car loan or mortgage. People who default on their payments tend to rack up a lot of debt before they default, so lenders watch how often you ask. New requests represent 10% of your FICO score. (The final 10% is based on the credit mix; lenders like to see a variety of debt types all in good standing.)
Lenders will take your credit report when they are considering granting you a loan, and this type of investigation is called a “serious investigation”. Serious inquiries stay on your credit report for about two years. Lenders view a tough set of inquiries as a sign of financial trouble.
“Informal inquiries” happen when someone views your credit as a background check – an employer, for example, can pull your credit report if you’ve applied for a job. And sometimes lenders pull your report to see if you’re a good candidate for a new credit card. Inquiries don’t affect your credit score.