1. Review Your Credit Report
In Part One of this series, I shared how to get your report. Now make sure everything is correct! In an interview with Jeff Rose, Philip Tirone states that 80% of Americans have an error on their credit report. That’s why it’s important to monitor these things. I hear it’s not uncommon for card companies to report a lower limit than you actually have on your card.
Sometimes you can make phone calls to fix it yourself, but you may need professional help to clear up your credit report. 720 Credit Score is a great resource.
2. Take Charge of Your Payment History
Pay on time and never miss a minimum payment. We learned in Part Two that payment history is the biggest part of your score – at 35%.
3. Don’t Close Credit Cards
Unless you struggle with spending habits or pay unnecessary annual fees, keep them open. This especially applies to your oldest cards (which keep your average age high). Have 3-5 cards open for a great score. More questions? These articles on Money Under 30 and 720 Credit Score have answers.
4. Control Your Utilization Rate
Card companies report the total credit limit versus the balance on the card. How much of the card you are using is called the utilization rate. So if you have a card with a $5,000 limit and a balance of $2,500 (any day of the month, not just your monthly statement), then you have a utilization rate of 50%. For a great score, always keep it below 30%. Shoot for 10-20% just to be safe. After all, this makes up 30% of your credit score!
So what if you are using a lot of your credit? Like 60% or even maxed out at 100 percent?
- Transfer the balance to spread it out on a few credit cards. You will still owe all that money, but when it’s spread out on three cards, the utilization rate goes down and your credit score goes up.
- Get a higher credit limit (maybe not likely if your card is maxed out). Call customer service for your card and ask for a specific number. Ask high. I did this and got an extra $3,000 added to the limit! They asked me why I wanted the raise (vacation, large upcoming expenses – I said we needed it for everyday purchases and it worked). They asked what our income was – so be prepared with an answer. They did a “hard pull” which means the request went on our credit report, but the higher limit will help in the long run.
By having a little knowledge and taking the right steps, you can have a great credit score. And when you have a great credit score, you save money!
Disclaimer: I am not a financial advisor. This series is not designed to be a substitute for any council – legal, financial, or otherwise.
Check out the rest of this series: