We all wish we had that perfect 850 credit score. After all, a higher credit score makes many of life’s challenges a little bit easier — and a lot cheaper. Mortgage terms and interest rates become more favorable. Lines of credit are more readily accessible, and credit cards offer more benefits.
Plus, you gain advantageous buying power to sync purchases with your financial timeline. As another year draws to a close with holidays, celebrations and resolutions, it’s the perfect time to evaluate where you fall on the financial scale and determine how to raise your credit score.
Your credit score is a composite number based on information about your financial habits—how you handle your money and your debts. The information typically comes from the three main credit reporting agencies—Experian, TransUnion and Equifax. Each agency assigns you a score that, when combined and compared with the other two, results in a final number that lenders use as a three-digit financial snapshot of you.
Since your credit score is a reflection of how you handle money, you have the ability to protect a very good score or raise a less-than-stellar one. You can maintain responsible financial decision-making to solidify a score or improve your spending and payment behaviors to help your score climb. Here are a few key strategies to make sure that your fourth-quarter spending benefits your credit score.
Check your credit report. You need to know what it says. You’re entitled to one free copy of your credit report from each of the three credit reporting agencies each year. So, make it a threefold end-of-the-year annual ritual, or stagger requests to review one report every four months. Either way, read your reports thoroughly and formally dispute any errors.
Pay your bills on time. Whether that means you need to set up online reminders or mark up a physical calendar, you need to ensure that you pay your bills—large and small, credit- and service-based—within the due date on each invoice. COVID-19 scheduling issues and holidays can make tracking bills and payments more challenging than usual, so save and file electronic or hard-copy receipts and correspondence just in case. By paying bills on time month after month, you’re building an uninterrupted history of financial responsibility.
Maintain available credit ratios. Your credit card may offer $5,000, for example, as a credit limit. However, avoid carrying balances that represent more than 10 percent of your limit or using more than 30 percent of your total limit. Ideally, you’ll pay off balances each month to ensure your credit card always retains its maximum value—your available credit, the amount you haven’t used but could if you need to. To keep credit utilization ratios to spec, you can make interim payments to reduce balances more quickly or inquire about increasing your credit limit.
Choose quality credit. Opening new accounts is simple and may even come with an initial discount on your purchase—especially during the holidays—but each approval requires a hard pull of your credit. Too many pulls can offset the benefits of long-term payment histories. So be selective, choosing workhorse credit cards that not only give you available credit you can use anywhere but also deliver perks like cashback, rewards, services and low-interest rates.
Use your credit to build your score. This is directly related to our third tip, maintaining available credit ratios. While you want to maintain high ratios of available credit, you do need to use your cards. In fact, card issuers may close or deactivate accounts that are inactive for a year. That’s why using credit cards for everyday expenses, bills and other purchases makes sense: it’s money you’d be spending anyway, so why not pay in a way that lets you budget the expense and earn benefits?
Set aside or budget the money you plan to spend on everyday expenses, the holidays or a vacation getaway, for example.
Pay with a quality credit card, a method more convenient and secure than handling cash.
Pay the credit card balance off with the earmarked money.
Collect any perks and rewards, and add a few points to your credit score along the way.
If you’re young, your greatest impediment to a good credit score might be your lack of credit history. You have to start somewhere, so a simple credit card with a modest credit limit lets you initiate a responsible money history that proves you always repay what you borrow.
A fantastic credit score is the result of learning how to make your money habits work for you and your lifestyle. If you’re looking for a credit card that will help with cash flow and make your spending pay off—or if you’re looking for that first-ever credit card to start building a credit history—check out all we have to offer at La Capitol. Let us be a part of helping you establish your solid credit history, and raise your credit score.