Last week, as part of our new year’s resolution coverage, I talked about how to check your credit report. I suggested that getting the score itself is not as important, as long as the report is error-free. But let’s say you went ahead and spent the seven dollars to get your score and it was lower than you’d like, even though you’ve not missed any payments. What to do? Here’s a few tips on how to raise it:
1. Time. If you’re just moving into your first or second (or even third) apartment, you’re probably pretty young. And a portion of your score is calculated by how long you’ve had good credit. Which means that, if you didn’t have a credit card in high school (I didn’t get one until I graduated college, personally), you’re likely not to have much of a credit history. If you keep up your good habits a few more years, the credit-score-assessors will trust that you’re in this for the long haul and your score should go up. Plus, until you need a loan for a house or a car, the importance of having good v. great credit scores is minimal, so just be patient. Even a prospective landlord or employer who’ll be checking your credit score will be more understanding if you are a recent graduate with a short credit history.
2. Increase Your Line of Credit. Part of your credit score is based on how much of your credit line you use each month. So say you have a credit card with a credit line of only $2000. And it’s one of those credit cards where you get points back for each dollar you spend, so you put everything you can on that card. And you’re lucky, because your landlord even allows you to pay rent with credit. So some months, you’re using $1,500 of your credit. It’s great because you’re getting $15 back on that, and you still pay your balance in full each month. Perfect, right? Unfortunately, the credit-score-assessors don’t think this is so great. Why? They see someone who is using 75% of their credit each month, which signals to them that you’re living at the very edge of your means. They can’t see your bank account, so matter how much money you may have in the bank, it appears to them that you’re one disaster away from financial ruin. How can you fix this? Two ways: first, request a larger line of credit from your credit card company. You can just call them up and ask. If you just moved out on your own and landed a job, they’ll likely give it to you – sometimes they’ll raise it as much as two or three thousand dollars. And carrying a balance of $1,500 on a $5,000 credit line looks far, far better. Such a small adjustment can make a significant difference in your score. Ideally, you want to be so that you’re using 25% or less of your credit line.
3. Get Another Credit Card. This is the second way to increase your credit line, but I suggest it with a bit of caution. Having more than three credit cards could land you in trouble – it’s hard to keep track of them all, it looks like you sign up for every offer in the mail, etc… But, if you only have one credit card, applying for another could be helpful: first, you’d have additional opportunity to demonstrate your responsibility and you’d have a richer credit history – all of a sudden you’d be paying two balances a month, rather than one. Second, each credit card has its own credit line, so you’re automatically increasing your total line of credit. As mentioned in point number two, that’s just what you want.
4. Always, always, always pay your credit card balance in full each month. If you don’t, it looks bad. Also, the interest rates are usurious. It’s obscene, don’t carry a balance on your credit card. Never, never, never, never, never, as King Lear says.
Next week, I’ll talk about what to do if you overdid it in college with your credit cards. Until then, adios…