How can I improve my credit score with my credit cards?
3 useful tips to improve your credit rating
If you're confused about the complexities of credit scores and credit ratings, you're not alone. There's no magic behind a credit score—just your history of purchases and payments that show potential creditors your good credit management skills. Good credit management includes paying on time, the amount owed (your debit-to-credit ratio), and the length of your credit history. All of these factors affect your credit rating and will come into play when you're trying to buy a car, rent an apartment or apply for a job.
3 tips to improve your credit score:
Good Credit Management Tip #1: Make credit card payments on time every time
Paying your bills on time counts for 35% of your FICO credit score. According to the Privacy Rights Clearinghouse, the number of accounts shown on your credit reported as "never late" or "paid as agreed" have a positive effect on your credit score.
- If you pay your credit card bills by mail, allow about 7–10 business days for mailing to avoid a late fee. You might also want to consider making your credit card payments online. You'll save money on stamps—and ensure you never miss a card payment due to the mail.
- Some credit card companies let you set up automatic payments of your credit card bill at no charge.
- If you forgot to make your credit card payment—you may be able to make a same-day credit card payment by phone or online. Check to see if your credit card company offers free same-day payments.
- Request a payment due date that is best suited to your lifestyle, whether you get paid late in the month, divide your checks between housing and expenses, or for any other reason.
- Consider making smaller payments several times a month—which can make your payment amounts more manageable. Some credit card companies allow you to make several payments a month—even up to every three days if you like.
- A great—and completely free—way to stay on top of payment due dates is to sign up for e-mail or text account alerts that remind you when a payment is due.
Good Credit Management Tip #2: Stay well under your credit limit
Creditors look at how manageable your debt load is. The less of your total credit line you use, the better your debit-to-credit ratio. Ideally you would only use about 30% of your total available credit on credit cards.
- Since it only takes one credit card at or near its credit limit to raise a red flag with creditors, pay down the credit cards that are the closest to their credit limit first.
- Many credit card companies offer free account alerts when you are nearing your available credit limit. This is a good way to be aware of your standing with your credit card balances and avoid going over limit.
- When requesting a balance transfer, bear in mind how much of your available credit you will be using. If you can, get a balance transfer that doesn't utilize your entire available credit line.
- MSN Money1 suggests if you're having trouble keeping track of your spending and available balance, check your account frequently at your credit card Web site, or using personal finance software like Microsoft® Money or Quicken® to download your transactions and balances automatically.
Good Credit Management Tip #3: Keep a lengthy credit history
The length of time you've had credit counts for 15% your credit score, according to myfico.com.You may want to keep your oldest credit card account open by making occasional small purchases. This can maintain your amount of total available credit—which has a positive effect on your credit score.
A few other suggestions:
Make sure your monthly household bills like utilities and cell phone service get paid on time —set up automatic payment of these accounts using your credit card. This is known as "recurring billing" and it helps ensure you never miss an important payment or incur a late fee—which can affect your credit rating. If you earn cash rewards or points on your credit card usage, this is also a handy way to earn extra rewards.
Improve your credit score—to reap lower interest rates
A 2008 Consumer Federation of America survey2 (CFA) estimated that consumers with an average credit score would reduce their credit card finance charges by about $105 annually if they raised their score by 30 points. If consumers nationwide raised their scores by 30 points, the total consumer savings would be $28 billion. Most consumers do not understand the meaning of credit scores, their importance, how to obtain them, and how to improve them, CFA studies found. Developing and maintaining good credit management habits are the building blocks to a great credit score. You can often find valuable financial information on credit card sites that can help you save money, make smart choices, understand credit and build your credit rating.
Discover believes that consumers should be armed with the information they need to help them make informed credit decisions.
Find out about the Discover Motiva card, which rewards your good credit management with interest back twice a year when you pay on time every month.
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