I am often asked “how can I increase my credit scores” the answer is not simple. There are a few things to know about credit, first is that your credit score is a predictor of your future spending habits. Secondly credit is not a point system it is an algorithm meaning you do not get points for payments and paying off credit cards and other seemingly positive factors of good credit also you don’t get minus set points for collections or missing payments(although both of those actions will hurt your score). Finally, you have to have credit to have good credit, if you look at credit like a basketball game then you would need to have players on the court in order to score. Cash is not king, if you pay off everything and do not use financing then your credit score will start to decrease over time. You have to look at credit in the prism of actions and behaviors.
When Experian was hacked several years ago, they exposed the personal information of nearly 150 million people, that gives them access to lots of spending habits. So if you were to try and predict how someone would handle a new credit card and they have had a collection in the past then the credit bureaus literally can go a pull 5 million people how had a collection 8 months ago and follow them to present day and a certain percentage of those people would have more collections a certain percentage would realize the error and payoff the collection and certain amount of people just go on living with a collection on their credit. Your credit score is there to tell future creditors what your chances are of falling into each category so that is why your buddy’s collection dropped his score 150 points and your collection may only lower your score by 60 points.
Now that we have established some credit basics here are a few tips to increase your credit scores. First of all, pay your bills, timely payments are one of the largest factors in predicting your future behavior, if you don’t have any credit reporting to your report then go out and get some secured credit cards. Also, you can go to home décor and electronic stores and buy something with credit you may have to put down a big chunk of cash but if they will give you credit then take it (and don’t over extend yourself). Second don’t close out your accounts, use them sporadically if you get a good relationship and don’t want to use the card then put it away but don’t cancel the account, when you cancel accounts your credit usage will increase, which increases the chance that your credit score could decrease. Third keep your balances low and limits relative to your earnings, if you have increased your pay but still have the same 3 credit cards from your early 20’s with $500 limits call the creditors and ask them to increase your limits. This may take more than one request, I personally have battled with a credit card company only to be denied 0% and limit increases, however once I paid the balance off and put the card in the drawer that same creditor sent me a credit extension and 0% offer letter within 30 days of no spending. The creditors need you and letting pride get involved with credit is a bad idea on both sides of the spectrum remember that to have good credit you have to play the game and pay your bills.
I know that there are more ways to increase your credit score but the above are the ones that I have personally tested in my journey from 580 to 780.
