When it comes to building credit, borrowing isn’t always the best strategy.
- Keep your oldest card open to help show lenders that you have a credit history.
- Make full and on-time payments to get the most out of your payment history.
- Boost your credit limit by requesting an increase every six months.
Your FICO score is like a report card for lenders. By looking at your borrowing history, lenders can determine how likely you are to pay them back if they extend credit. You may think that borrowing more will show lenders that you’re a reputable borrower, but there are better ways to boost your credit score. Read on to learn more about how to increase your credit without taking on more debt.
1. Keep your oldest card
When calculating your credit score, credit reporting agencies consider a variety of factors, including the length of credit history. In fact, history length is the third largest contributor to your overall score. Having a longer credit history is considered a positive indicator when calculating your credit score because it shows that you have a borrowing history.
Like many things in life, a credit score generally improves with age. The length of credit history accounts for about 15% of your credit score. In this category, one of the biggest contributors is how long your oldest account has been open.
But should you keep your oldest account open even if you’re not using it? Experts say yes. If your oldest account is the one you opened in college and the next oldest is an account from your mid-twenties, you could jeopardize the length of your credit history by years simply by closing an old one. account.
2. Pay on time and in full
Of the five factors considered when calculating a credit score, by far the most important are payment history and amounts owed. These two categories make up about 65% of your total credit score and can make or break your reputation as a borrower.
By paying your debts on time, you can start building your payment history. Payment history is considered one of the strongest indicators of your likelihood of repaying future debt and is the primary factor in calculating your credit score. Payment history takes into account payments made on everything from credit cards to car loans and mortgages, and is highly sensitive to delays versus late payments. The process of building a strong payment history can take a long time, but paying bills on time is a huge factor in your overall credit score.
The second most important factor in calculating credit is the amounts owed. Having a balance on one credit card isn’t necessarily a bad thing, but having balances on many cards can signal to a lender that you’re overcharged.
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3. Know your limits
Another piece of the FICO puzzle is credit usage. Your credit utilization rate is the percentage of available credit that you use regularly. Generally, lower utilization reflects favorably on a borrower because it shows the lender that the borrower is not hitting their limit every month.
One way to keep usage low is to have a high limit credit card or to request credit limit increases on a semi-annual basis. As you continue to increase your available credit, your borrowing will take up a smaller and smaller percentage of your credit limit. You shouldn’t ask for a raise more frequently than every six months, which could indicate that you are expecting future financial problems and could have a bad effect on your credit.
When it comes to credit, getting into debt may not be the best strategy. Instead, consider keeping your oldest credit card, paying your bills in full and on time, and requesting a limit increase every six months. By using these three strategies and being patient, you can gradually increase your credit score.
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