Your credit card is one of the factors that decide your credit score. Have any idea how important the card is? Probably not. But I hope you’ll get the idea once you are done reading this article.
To start with, paying off the outstanding balance on your card in time is not enough. There are few other things that you need to keep in mind when you use your card. Only then, you can increase the score, and keep it that way.
The list begins with……….
Are you one of those, who are impulse buyers, get carried away seeing flashy apparels or cool gadgets, and charge almost near to the credit limit to buy it? If you are, then you have been hurting your score all along without even realizing.
Many cardholders think it’s okay to charge near the card’s upper limit. They think they’ll pay the whole balance after receiving the balance statement. Case closed. But when the card issuer supplies account information to credit reporting agencies, the date of the account balance is the date, when the last statement was issued.
The report doesn’t show that you’ve paid the debt. As the credit report shows the outstanding account balance, your credit score bears the brunt. Hence, if you want to raise your score quickly, don’t ever charge near the credit limit. Always charge less.
Credit utilization rate
Not everyone knows this hack. The ones who do, have an easy time raising their credit score. The credit utilization rate is taken in stride by FICO when it gives you a credit score. To find the rate, divide the total credit card balance by the total card limit.
A low credit utilization rate is good for your score. Lenders prefer a low utilization rate over a high rate. Keeping the rate below 30% of your credit limit is safe, but below 20% is recommended. Lenders want to see that you are responsible indeed, and know how to use the card. A low utilization rate informs them you are.
Credit limit and account
What follows from the above discussion is you should keep your credit limit high, and don’t close the account. Let me explain why. First, if your credit limit is low, then your charge could reach the limit quickly. Keeping the limit high means you can use the card to pay for small items, knowing it won’t go near the limit.
When you close a credit card account, the credit limit on the card automatically gets excluded from the utilization calculation parameters. People often close their credit card accounts because of nagging annual fees and interest rate. A high credit limit means higher interest rates. These are troublesome, but you have to endure these so you credit score increases.
Don’t use your card too often. How much are you recommended to use? Okay, if your credit limit is X, don’t use more than 10% of X, which means if your credit limit is $5000, don’t spend more than $500.
Check your billing statement every month, and compare your account balance with the credit limit using the formula stated above. In case you are paying only the minimum amount, start paying in the full. And don’t use your credit card unless it is absolutely necessary.
Issuer’s reporting time
Credit bureaus receive reports from card issuers once every month. The timing is very important because if the issuer sends the report when the bill is due, it’d negatively affect your credit score.
The solution to the problem is easy. Pick up the phone and give a call to your issuer. When the CEE responds, ask him/her at what time they are going to report to the credit bureaus. You’ll know the date, and pay off the entire balance, if not in full, then as much as you could, before that date.
Make some healthy habits
Pay the outstanding balance on your card in the middle of a month. It’s the time when no card issuer reports to the bureau. They send the report at the end. Paying down the balance in the middle of a month saves you from worrying, and your call cost too.
If you are a forgetful person, then setting up an balance reminder is a must for you. It’s easy, sign up for balance alerts, a facility that almost all issuers provide. Make sure that you receive the alert when your balance reaches 30% of your credit limit.
What do you think of the tips discussed above? Would you use your credit card to increase your credit score? Let us know your all plans in the comment section below.