Thursday, November 6, 2014

Raising your credit score...and possibly your credit limit.

Long story short:  I am NOT a credit advisor.  I only know what has worked for me.  Less than 8 years ago, I was not able to rent a car while on vacation because I had a credit score of zilch.  The only credit card company that would even take a chance on me was Capital One (I mention that in case someone else out there needs to know a good place to start).  And when I got my first credit card, I didn’t know how to use it.

Swipe it.  Yeah, I got that part.  I was very cautious and diligent about paying it off every month.  So I began to have a credit score.  A very small credit score that was not going to grow any time soon.  Why not?  Because, for whatever reason, the credit score companies don’t track how much was spent and paid off—EXCEPT the balance on the card when the credit card company pulls your statement each month. 

So here’s what I did to raise my credit score.  (No, I’m sorry, I don’t know if it will work for people who are trying to rebuild their credit.)  Basically, the credit card company pulls a balance on Month/Date, and then specifies a later date that a minimum payment has to be paid by.  I began leaving a balance on my card, one that I could easily pay off in its entirety before the minimum payment came due.  (Tip: never pay just the minimum payment.  The interest rates on credit cards are horrendous.)

Be careful what kind of “credit card” you get, too.  A JC Penney’s Visa, a Home Depot Mastercard (no idea which credit card those stores actually use, just mixing and matching), an RC Wiley’s Thingamajig—those are reported differently to the credit score companies.  What’s worse, some stores aren’t always careful how they report your card usage.  If they report you as paying late, that will damage your credit score.  But paying regularly and on time doesn’t really build your score.  Unfair?  Yup.  So if you’re going to get a Visa, get an actual Visa, not the kind that you apply for in the checkout line and comes with a store logo on it.   

So now you’ve got your credit card and you’re ready to use it.  As I understand things from a class I took, having three or four major credit cards (no more, no less) is the fastest way to raise your credit score.  But remember this: if a card has no balance for three or four months, it basically goes dormant and is not reported to the credit score companies.  I don’t know why not.  But a good rule of thumb is to put your cards in some sort of order and rotate through them every month.  I have a favorite card, I’ll admit, because it accrues points.  However, I do try to remember to rotate through the others so that they’re still working for my credit score. 
There are all sorts of benefits to raising your credit score.  Offers to increase your credit limit will probably come your way, so be careful to assess the situation realistically.  If you can't keep up with it, your credit score will suffer, so it's not worth it.  For myself, in less than eight months, I have had to rent a car twice, apply for a car loan, and pass a credit score check for an apartment application.  Naturally, my credit score has dipped, as those sorts of things are supposed to be spread out, lol.  (Note: loans and housing do run a slightly different credit course, but following the tips listed above adds up to making you look solid.) 

Well, there you have it.  I thought I had been so smart before I learned that I wasn’t.  My first few years in college I tore up and threw away every credit card offer that came to me in the mail.  That may have saved me from a lot of grief, such as being a teenager who has racked up tons of careless credit card debt, but I didn’t know I could eat my cake and have it, too.  Now that you know more than I did, please take this opportunity to benefit from someone else’s mistakes. 
Tip: Try to have only one card with a reported balance at a time, at less than 13% of your total available credit.  That is something I picked up recently through Google, so I haven’t tested it yet, but it does make a certain amount of sense.