For the longest time, I thought my credit was in a pretty standard range. I considered my credit score of 720 to be fine, but nothing too stellar. I paid my bills on time, and I had a few credit cards that I used for groceries, my weekend adventures, and other expenses. Maybe I wasn’t paying the balance off in-full each month, but I thought I had a pretty solid handle on my debt.
One day, my credit card company decided to cancel one of my credit cards due to lack of use, which dropped my credit limit to a fraction of what it was before. The bad news kept coming: my credit score dropped to 600, which caused me problems getting approved for more credit cards. What was I to do? I decided to give my credit a makeover. Five years later, my credit score has been boosted to 810. While this plan may not work for your specific situation (check with your financial or tax advisor), here’s how I pulled it off:
1. I PAID BACK AS MUCH AS I COULD, AS FAST AS I COULD
According to Santander Bank, your credit score is calculated by your utilization rate, or the ratio of total credit debt you’re in to how high your credit limit is. So if you’re $3,000 in debt, but your credit limit is $5,000, you’ll likely have a lower credit score than someone who is $10,000 in debt with a $50,00 credit limit. I cut expenses where I could—no more morning coffee at Starbucks, fewer lunches out, and so on—all in an effort to reduce my debt.
2. I ASKED FOR ANNUAL CREDIT INCREASES
A fast and easy way to boost your credit score is to get more credit—something you can easily ask your bank for. This also has some negative consequences—this will cause a “hard pull” on your credit history, which can negatively impact your credit score if the request for more credit is denied. To make sure my requests didn’t get denied, I didn’t ask for more credit until after I got a raise or bonus at work, saw an uptick in my credit score, or had a new credit card for about a year. The bump in your credit limit can make a huge difference, even if you don’t plan to use it.
3. I SET UP RECURRING AUTOMATED MINIMUM PAYMENTS
I normally pay all my bills on time, but I know how missing a single credit card payment can quickly take my credit score down the tubes. I set up the minimum recurring payments for my credit cards to automatically sweep over each month to make sure I won’t ever get dinged if I accidentally miss a payment.
4. I PUT RECURRING EXPENSES, LIKE UTILITIES, ON A CREDIT CARD
Creditors like to see regular charges hitting your credit card, and are more likely to raise your credit limit if they see them, which ultimately impacts your credit score. I set my gym membership and water bill to hit my credit card each month to help with this.
5. I OPENED ADDITIONAL CREDIT CARDS
It may seem odd if you have a spending problem to open additional credit cards. But if you’re approved for another card, it will increase your spending limit at little risk, as long as you’re capable of using it on a regular basis and paying it off. You can always add a recurring expense to the card, and just set it and forget it.