October 6, 2013
What are the top two ways to increase your credit score (FICO score)? Hint: They require an organized and disciplined person.
What are the top two ways to increase your credit score (FICO score)? Hint: They require an organized and disciplined person.
Make any payments on time and limit your balance to 35% or less than your available credit.
Well done, Karen! Let’s recap.
1. Pay your bills on time. This is the #1 way to improve your credit score. This takes discipline, organizational skills, and a determination to take full responsibility for one’s financial life. Set those bills up with online banking and make sure to never pay late. Your score will thank you for it.
2. Use less than 35% of available credit (I encourage you to use less than 10%). This means that if you have $10,000 in available credit, you use less than $3,500 of it. Let’s take two credit cards as an example. One has a $6,000 credit limit and the other a $4,000 limit. Your average balance is $3,000 a month on the first one (which you pay off in full every month) and $100 on the second one (it is your backup that you rarely use). This shows you using 31% of your available credit ($3,100 divided by $10,000). This will improve your credit score.
Bottom line? Understand the rules of the game if you intend to increase your credit score over time (hit 760 and you are golden). It will save you THOUSANDS of dollars when the day comes to get a mortgage. Take control of YOUR financial life, and that includes your credit.