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You’ve probably heard about credit score tips like paying your bills on time or being responsible for your purchases. These are cliched tips your parents probably gave you. If you want to know what we did to increase our credit score to 800, sit back, relax, and get ready to learn.
However, it’s important to understand that increasing your credit score does not happen overnight. It takes consistency and some effort on your end, but if you apply these credit card tips one by one, you’ll be surprised those three-digit numbers on your credit report will go up sooner than you expect.
1. Use Only 10% Of Your Credit Utilization Rate (CUR)
Credit scores are based on multiple factors such as unpaid debts, account age, and of course, your credit utilization rate. A CUR sounds like a complicated term, but it’s pretty simple – it’s your total credit limit divided by the actual credit you’re using.
We advise you limit your CUR to 10%. For example, if you have a total credit limit of $5,000 among all of the credit cards you have, only use $500 every month. Issuing companies will see that you’re a responsible spender which will have a positive effect on your credit score.
2. Get Credit Cards With Less/Zero Fees
What do you do if you have a low credit limit? Let’s say your total credit limit is only $1000, it’s quite hard to limit your spending below $100, isn’t it? There’s no way you can keep your CUR at 10%.
The answer is to get multiple beginner cards with zero annual fees, zero transaction fees, and a low APR. Since you’ll have less financial responsibility of paying for these fees, you get to add cards and keep them long enough to reach a higher credit limit.
Alternatively, we also encourage people to ask their issuing companies for a credit limit increase. There’s no harm in doing so if you think you’re practicing good credit card habits.
3. Space Out Your Credit Card Applications
There’s actually nothing wrong if you apply for multiple credit cards within a short period. You just need to make sure the cards you apply for are easy to get approval for.
Approvals increase your credit score while rejections lower your credit score. There are a few strategies you can do to increase your chances for a credit card approval, but it’s not a 100% guarantee. It’s better to space out your applications by six months.
4. Lower Your Debt-to-Income Ratio
Banks and credit bureaus look at debt-to-income ratios (DTI) when determining your credit score. You can calculate your DTI by dividing your monthly debts (car loans, credit card balances, and mortgage) by your monthly income.
People with high DTI gives red flags to credit card companies. The goal is to lower your DTI as much as possible because this would mean that you’re a low-risk debtor.
5. Spread Out Your Debt
Cardholders who have the right mix of debt are low-risk debtors. Try to put yourself in the shoes of a lender and decide which debtor you think is less of a risk.
Debtor A: Has a total debt of $100,000 that’s composed of credit card balances, mortgage loans, and car loans.
Debtor B: Has a total debt of $100,000 on a car loan.
Income is one factor that needs to be considered, but it’s pretty evident that Debtor A is the low-risk debtor. It’s clear what Debtor A’s spending habits are compared to Debtor B, who spent $100,000 just for a car alone.
Bonus Credit Score Tips: Building Vs Rebuilding
There are no shortcuts to increase your credit score to 800 getting good credit scores, but always remember that it’s easier to build up than to rebuild your scores. The key is to consistently practice good habits and let the credit card bureaus and banks decide.
If you have little or no credit history, doing the five credit score tips mentioned above will help boost your credit scores. However, rebuilding a tainted credit history usually takes years. Credit card inquiries will remain for about two years on your report while late payments will stay for about seven years.