5 Best Ways to Increase Your Credit Score

First, I am going to go out on a limb and assume that you have read my previous posts which talks about credit scores, how to get yours for free and other tips and tricks.

So let’s dive right in. Here are the 5 Best Ways to Increase Your Credit Score:

1. Pay on time. (35% of your score)

Easier said then done sometimes, I know. But this one factor makes up 35% of your FICO score.  If you have a big bill that you just can’t pay off entirely, make sure that at a minimum you are paying the minimum balance on time.  The easiest way to ensure that this is never an issue is to set up automatic payments with your credit card by using the online bill payments tool associated with your reoccurring bills like cable, electricity, etc… While your at it, why not be green and sign up for paperless statements too?  Let’s be real, you are much more likely to open an email with your bill statement than to find time to go through the stacks of bills that are collecting dust on your coffee table – right? Just make sure that you also are automatically paying off and reviewing your credit card each month.  You should set this up so that your credit card bill automatically gets paid in full from you checking account monthly.    This strategy only makes sense if you pay off your credit card bill each month.

If for some reason you can’t pay off your bill each month or make the minimum payment, always, always, always call the company and let them know.  You can sometimes work out a payment plan that suits you both.

2. Keep debt low and credit high. (30% of your score)

For some of you this may sound confusing.  Isn’t debt, credit?  Au contraire, my little grasshopper.  Debt is the amount of money you OWE or the total of all your outstanding balances on your various accounts.  Credit is the maximum amount of money each credit card company is willing to let you charge or BORROW.  So, say you agree to get that little Victoria Secret card the sales lady tries to hawk to you every time you go in to get some new under garments.  If you charge your purchase and then pay off the balance immediately you have effectively increased your CREDIT and decreased your DEBT.  Good Job!

Here’s where they get you though: some gals (dare I say a LOT of gals?) don’t have 1) the self discipline to not max out their credit limits or 2) the time to track and pay off the balance by the due date.   This is what companies like Vickie Sickie are betting on! It is how they make more money – they not only charge you for that sexy new satin thong, they also get you paying interest on it!  Which is not sexy at all. So don’t drink the “15% off your next purchase” Kool-Aid. Be honest with yourself.  If you know you are too busy to worry about paying off 10 zillion cards from various merchants or that you can’t control yourself from maxing out the cards, don’t sign up for them. Its that simple. Just focus on paying off the debt you have on your existing cards.

Bottom line: the goal is to DECREASE your DEBT / CREDIT Ratio.  If you have a good credit history, and honestly believe you can responsibly take on additional credit, another way of improving this ratio is by asking your credit card company for a credit limit increase.  That’s the least they can do for all your good patronage right?!

Tips 3,4,5: Mix it UP, Don’t Cut Ties &  Don’t Go Credit Crazy (35% of your score)

Don’t cancel old credit cards. I am definitely guilty of doing this one. Thinking I was being all “responsible” by canceling cards I wasn’t using anymore – WRONG!  Credit history accounts for 15% of your score.  The longer your history, the better, so even if you haven’t used your card or you want to reduce the number of cards you have so you won’t be tempted to spend, its better to just cut them up or put them in your sock drawer – then to proactively cancel them.

Mixing it up is a good thing when it comes to credit. FICO likes to see that many different types of institutions have given you credit, from retail stores to student loans to mortgages.  This is not an excuse to go crazy with the cards – as always you need to proceed with caution and be honest with yourself, weighing the pros and cons.  Lastly, never go credit crazy and open up a bunch of “new credit” at once.  This will make FICO suspicious, “Why, all of a sudden does missy need 5 cards??” No matter how many free gifts or 0% offers you get, don’t go there.

The article below has some other tips on monitoring and improving your credit including a review of my fav www.creditkarma.com:

• Credit-score simulators can help you keep tabs on rating (seattletimes.nwsource.com)