How many people really know HOW to get a good credit score? I mean really. Do you even know what makes up a good score? 500? 620? 875? Many people struggle with increasing their score for 2 reasons. 1) They don’t know what makes up their credit score and 2) they don’t know how to manage their credit card properly.
What if I told you there is a way to automatically increase your credit score?What if I told you there is a way to automatically increase your credit score? No lie! I use this method all the time! As a matter of fact, with this system I increased my score from 660 to 750+ in 6 months. Â Before I show you the system, let’s go through a quick score breakdown to show what is considered “good”.
Here are the ranges:
Anything below 600 – Letter Grade: F
600-649 – Letter Grade: D
650-699 – Letter Grade: C
700-749 – Letter Grade: B
750+ – Letter Grade: A
So why is it important to know this? Answer: Once you know what makes up your credit score the easier it is to build it up. Once you know what makes up your credit score the easier it is to build it up. Easier said than done, right? True, but with enough patience and determination you can hit 750 in no time! Without further adieu let’s get to automating!
We’re going to use the lovely pie chart from FICO above. If you don’t know what FICO is it’s basically the company that crunches the numbers to produce your credit score. There are a number of other consumer credit risk reporters, such as VantageScore, PLUS Score, TransRisk and Equifax. We’ll just stick to FICO to make things easier. Let’s start with the biggest component and work our way from there.
35% – Payment History
One of the most important factors that makes up your credit score is making payments on time. One of the most important factors that makes up your credit score is making payments on time. To ensure you ALWAYS pay on time automate your payments. So how do you automate your payments? When you receive a credit card, there are two options to make a payment which includes making payments manually or through direct debit (the automation!). With direct debit, the minimum payment listed on your credit card is taken out of your account when the payment is due. When you automate, you no longer have to worry about paying on time. With manual payments, you constantly have to remind yourself to pay on time each month. So automate your payments and your worries are gone! Just make sure you have enough money in your bank account to cover the minimum payment. You wouldn’t want to get hit with an overdraft fee!
30% – Amount Owed
The second most important factor is the amount owed. With this category, it’s all about your utilization rate (Credit Card Balance/Credit Limit). A good utilization rate is below 30%. I personally like my balance to be 0% so no interest is added onto the balance. Here’s a good rule of thumb; if your balance is over 30%, pay a little extra to get that balance within the 0-30% range, if your balance is under 30%, pay the minimum payment. Here’s an example, you just made a $350 purchase and your minimum payment is $35 and you have a $1,000 credit limit, pay an extra $15. If you made a purchase that’s under the 30% threshold I would advise monitoring your credit balance and pay a little extra on your next payment to sustain a manageable balance.
Now some credit lenders give you the option to change the amount you can automatically pay each month while others only give you the minimum payment option. At the end of the day it’s up to you how much you want to pay each month. Just know, paying a little extra goes a long way to building your score.
15% – Length of Credit History
With this category your biggest enemy is time. The longer you hold an open credit card account the more this category plays a factor into your credit score. Â The best way to automate this piece of the credit score is to continue having an open credit account. One of the worst things you can do is CLOSE OUT a credit card. Closing an account lowers your credit score. I’ve only had my credit card for 3 years now, which I think is good in my opinion, but imagine having a credit card for more than 5 years, now that’s some good credit history!
10% – New Credit
The new credit category is all about increasing your credit limit. I’ve probably asked about 3-4 times for a credit limit increase. Getting new credit increases your credit score. To automate this, schedule a time in your calendar to request a credit increase at least twice a year with your credit lender. Getting new credit added to your credit limit boosts your credit score and lowers your utilization rate which gives you a 2 for 1! One time, I asked for a request twice within 2 months and I got a $2,500 increase! I don’t anticipate using that much credit right now but it’s great to see that score rise.
10% – Credit Mix
Last but not least is the credit mix. This category is basically the different sources of debt you manage (auto loans, credit cards, student loans, mortgage loans, etc.). The more debt you have in different categories the more diverse your credit mix. In my opinion, I would focus less on this category as it encourages you to take on more debt. Even though the credit mix doesn’t contribute as much compared to the other categories it will still be on auto pilot if you have a mix.
Tips
- Limit yourself to at most 2 credit cards. I tend to stick to one because it’s easier to manage. Having two credit cards shows lenders you can manage credit card debt well and can increase your score.
- Check your credit balance at least twice a month. That way you constantly know what your balance is and if any charges seem unusual you can dispute it readily. A good rule of thumb would be 3 or 4 days before your payment is due and two weeks from that time.
- Pick a credit lender that shows you your credit score each month. It’s great to see that credit score feature pop up after each month. You know exactly what your credit score is and you can see the progress you’ve made. In a way, it makes paying off your credit card a game!
- Before making a big purchase such as a house or car, talk with a credit analyst at your bank on what their definition of a good credit score is. That way you gain more insight into knowing the interest rate and loan amount you will qualify for.
Edited by: Nigia Cusic
