Try These Credit Score Management Strategies
You already know that paying off debt will help increase your credit score. You might wonder what else you can do in the meantime. Savvy consumers know that it is not just how much you pay, but how and when you do it. If you try these strategic ways to increase your credit score, you can get a higher score when you need it most.
Decrease Your Credit Utilization Ratio
People often make the mistake of looking at debt strictly in terms of how much they owe, instead of how they are using credit. Credit utilization represents up to 30 percent of your credit score. Keeping it in check is one of the most important credit score management strategies.
For example, if you have $10,000 in credit on two cards and $2,000 in debt, your total credit utilization is 20 percent. Lenders generally like you to keep it below 30 percent, and 10 percent is even better. This aspect is also measured by the individual card. If that $2,000 is on a card with a limit of $4,000, the ratio for that card is 50 percent.
Having lots of available credit may not be as helpful to your credit score if all your debt sits on one card. When you plan your debt payoff strategy, look at your credit utilization ratio for revolving debt. Getting a bigger debt to a manageable level may add more points to your score than paying off a small one.
Schedule Payments for the Best Time
Your current creditors likely have a specific time per month that they post to your credit report. This date will vary for each debt you have. If you know when a creditor reports your debt amount, you can schedule a payment for the maximum effect. For many companies, this date is the closing date for the billing cycle.
Your goal is to get your numbers as low as possible by the date of report. If lenders look at your credit report and see thousands of dollars in debt on a single card, that is the information they use. Paying it off the day after the creditor reports the debt will not help your score as much.
If you do not want to worry about fluctuating numbers, you can schedule your payments before the closing date. Time new card or loan applications after a larger payoff is already reflected in your credit report. That way, you do not have to explain the difference.
Make Multiple Payments Per Month
Did you know that even if you never carry a dollar in debt, credit utilization can negatively affect your credit score? Many people use credit cards for regular purchases and pay it off monthly, to accrue rewards and other benefits. A lot of purchases or one big expense can dramatically change your ratio, depending on the date you make payments.
To overcome this issue, you can plan to make more than one payment in a month. For example, if you put $2,500 on one card, you might plan to pay it off next month. However, if you have half of it right now, you might try making that payment immediately. This will keep your reported debt and credit utilization lower at the end of the billing cycle.
Diversify Your Credit Types
The mix of credit types on your report affects about 10 percent of your credit score. This might not seem like much but balancing the different kinds of debt you have could give you an extra 10 or 20 points. This change might bump you up to a new credit level that gives you better terms on loans or rewards on credit cards.
Although the balance may matter more to people with a limited credit history, almost anyone can benefit. If your credit report mostly shows revolving debt like credit cards, you may want to expand the types of credit you use. Adding an installment loan such as a car loan or personal loan might better provide for your financial needs and boost your score at the same time.
Your credit score affects much of your daily life, but you can influence it to your benefit. To take control of your financial future, get your free credit score, apply for a loan, or select a credit card with help from CreditSoup today.
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