by Daniel | Last Updated Jan 4th, 2022
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In this article, I am going to show you 5 simple ways you can effectively boost your credit score.
Having good credit is really important as it can help you secure lower interest rates when you are applying for home loans or car loans, and over the long term, this can save you a significant amount of money.
With a high credit score, you will also have access to more lenders as they will be more likely to want to do business with you, which in turn will give you more leverage in who you chose to borrow from and what the terms of the loan might be.
1. Try to avoid missing payments
So one of the most important things you can do to achieve good credit and maintain it is to make sure that you pay off your credit as soon as you can and not have any late payments if possible.
Now you can set up automatic payments the match the minimum amount due, just make sure that you actually have the available money in your bank account to cover the payments as it is best to avoid an overdraft of your bank account.
One of the problems with late credit payments is that they can stay on your credit report for over 7 years, and this affects your overall credit score.
2. Avoid too many credit inquiries
First of all, there are 2 different types of credit inquires a soft inquiry or a hard inquiry.
With a soft inquiry, it is not likely that it will affect your credit score as they are not attached to a specific application for credit.
Examples of a soft inquiry would be when you check your own credit, a mortgage lender checks your credit to pre-approve you for a loan that you haven’t submitted a full application for, or if you authorize a potential employer to check your credit report.
As long as there is not a new application for credit it will be a soft inquiry.
Now a hard inquiry happens when you are applying for a new line of credit, whether that be for a mortgage, auto loan, or new credit card.
Basically what happens is that a creditor will request to see your credit file so they can determine if you pose any risk as a borrower.
Anytime there is a hard inquiry it will show up on your credit report and it will stay there for up to 2 years, and lenders will be able to see all the inquires that have been made in this time period.
It will also negatively affect your credit score in the short term which is usually a few months.
Most hard inquires account for about 10% of your credit score so they are not terrible but they can add up if you have too many.
3. Understand what your credit utilization is
This is a major factor and has a large influence on determining what your credit score will be.
Credit card utilization is relatively easy to understand.
For example, if you have a credit limit of say $10,000 and your balance is $3,500 then your credit utilization for the credit card is 35%.
It is extremely important to try and keep this number as low as possible (below 30% is desirable) as if it is too high then it can indicate that you may be overextended on your payments and may find it difficult to repay the money you have borrowed.
A few ways to keep this number low are:
Making multiple payments throughout the month, by doing this you will lower your credit utilization and therefore increase your credit score, this is what I have done with my credit cards for years and my credit score has always been high as a result.
If you have more than one credit card you can make smaller payments on each of them to keep the credit utilization low.
It is also possible to set up balance alerts for your credit card that will notify you if go past a pre-set limit.
4. Ask for a higher credit limit
You can also ask your Credit card issuer if they will raise your credit card limit, for example, if you were able to increase your credit card limit from $10,000 to $50,000, based on the example I used before of having a $3,500 balance on your account it would bring your credit utilization down from 35% to just 7%, and this will once again help you achieve a better credit score.
But you have to be a little bit cautious when asking to get your credit card limit increased as it can result in a hard inquiry which can potentially affect your credit report negatively.
5. Become an authorized user
Basically, this is when you ask someone you know whether it is a relative or friend if you can be added to one of their credit accounts as an authorized user.
First of all, it is important that the person you ask has a good credit history and an account that has been around for quite some time.
Now with an authorized user, only the primary account holder is legally responsible for the credit repayments.
And as this could be risky for the primary account holder it is possible for them to just put your name on the account as an authorized user but not give you a card or the account information.
This will still benefit you both, it will protect them from having any unwanted bills to pay, and as long as the primary cardholder continues to maintain their high credit score by making payments and keeping their credit utilization low, you will get the benefit of piggybacking of their account and actually building your credit history.
(One thing to keep in mind with this method is that if the primary account holder suddenly decides not to pay back their credit or their credit utilization become very high, this will affect your credit score negatively as well as theirs.)
Ok, so that’s 5 simple ways that you can easily and effectively increase your credit score.
If you have any other ideas about how to increase your credit score, please leave a comment below as I’d love to hear your thoughts.