Dear Opening Credits,
I am a college student with a credit line of $500. I make a minimum payment of $35 a month, and I am never late on payment. My credit utilization ratio is tentatively around 80 percent. The credit card provided is by Discover. My goal is to raise my credit score. I’ve had this card for about six to seven months now. What effective strategy could I implement that could raise that score significantly? – Luc
You want a super high credit score? Great, but have patience. Credit scores from both FICO and VantageScore both range from 300 to 850, and it takes time to reach the uppermost numbers. You don’t specify what your scores are now so I’m not sure how far you have to go, but anything in the mid-700s and above is in the excellent zone.
Still, I do see a way for you to quickly add some points. It has to do with the amount of money you owe on your one and only credit card. You’ve charged up most of your account’s credit line and that is negatively affecting your credit rating. If you believe a popular myth that carrying a balance is positive for a score, prepare to abandon that idea. Here’s why.
Credit scores were developed so lenders could make fast and objective lending decisions. With one glance at a score (which is based on a person’s credit use, from the past to the present), the lender can determine how much risk it’s taking by doing business with a prospective customer.
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The most important scoring factor is payment history, which makes sense, and you’ve got this covered! By sending in your payments by the due date, you are building a case that you’re a responsible borrower. Continue this pattern over a couple of years and you’ll make a huge difference in your scores.
The next weightiest scoring consideration is credit utilization. The less debt you carry over on your credit card from one month to the next, the better – and no debt is best. By regularly using the card to make purchases and paying in full, you will prove financial stability. It will show that you’re not charging to make ends meet, but are using the card as a smart payment tool.
If you were to finance a vehicle or home, it could help push your scores upward, even with a big balance appearing on your credit report. Having both loans and credit cards on your credit report and managing them well indicates that you can handle a variety of credit products, which boosts a score.
So here are my recommendations:
- Pay off your balance. When it’s noted on your credit report that the balance is zero, the credit scoring companies will input that data into their algorithms and you should soon see a numerical increase.
- Ask Discover for a higher credit limit. You may want to charge something expensive in the future and pay over a few months. That’s fine, but the balance shouldn’t exceed a third of the credit line. With your pattern of perfect payments, they might agree now – a March 2017 CreditCards.com survey found that you can often get better terms on your credit card just by asking. If they don’t, try again when you’ve repaid the debt and a full year has passed.
- Add another credit card to your wallet. Not only will an additional card expand your credit utilization ratio, multiple accounts kept in good standing help credit scores rise. Apply for one you will qualify for (check out CreditCards.com’s CardMatch tool) and that fits your credit rating to avoid excessive hard inquiries, which will pull your scores down temporarily. At this point in your life, I would avoid cards with annual fees. Discover also offers free FICO scores, so you should be able to monitor your progress as well as know what type of cards you can qualify for based on your score.
With this strategy, I assure you that you’ll reach your goal. After that, it’s all about maintenance. Keep an eye on all credit card statements and check your credit reports to spot errors that could hurt your scores.