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By Claire Hegstrom
By now, the general best practices for keeping your credit score in good standing are common knowledge, but there are a few life hacks the big banks aren’t telling you.
Our mailboxes are inundated with weekly credit card offers, but a stellar credit portfolio requires more than some flashy plastic and making your payments on time. While using your credit card and paying off the balance every month is a great start, this covers only one small portion of what is reported on your credit score. Unfortunately, there’s no “overnight boost” formula to improving your score, but the faster you address any deficiencies in your credit portfolio, the faster your credit score will increase.
Your credit score requires two different types of credit in order to develop a well-balanced portfolio. While a credit card covers the open line of credit, also known as a revolving line, your credit score also includes closed lines of credit. A closed line is also known as an installment loan. It’s a loan that you eventually pay down completely (think car loans and mortgages). An unsecured personal loan, a loan that is backed by your signature instead of collateral, can also serve as an installment loan to create a better credit mix and complete your profile of credit worthiness.
Keep your oldest credit card open
Think twice before you grab the mighty blades of credit card destruction. When you close your oldest credit cards, you’re also throwing away years of positive payment habits that prove your creditworthiness. Use your oldest credit cards at least once every six months, then pay them off right away to keep these years of responsible usage on your credit report.
Follow the “30% rule”
If you’re constantly maxing out your limits on your credit cards, you’ll want to adjust your habits to boost your credit score. The general rule is that it’s best to keep your balance under 30% of your total credit limit. In fact, a principal scientist at Fair Isaac Corporation says, “Consumers with FICO scores of 800 use, on average, 7% of their available credit.” Maxing out your credit card every month can send false signs to lenders that you aren’t great at budgeting your regular income.
Take advantage of a HELOC
It may sound counterintuitive to take out a large loan, but a home equity line of credit (HELOC) is the perfect avenue to increase your capacity at a low interest rate. Capacity is a way for lenders to measure how much money you can be trusted with to pay back. Like a credit card, when you open a HELOC, you have no obligation to use the line of credit, but those funds can serve as an emergency stash.
Another overlooked advantage of a HELOC is that the limit is usually very high, ranging anywhere from 20% of your home’s value to 100%. HELOC funds are a great way to finance your new car, pay for home improvement projects, or even consolidate your debts at a much lower rate. This line of credit can also assist you in making large purchases without hitting your 30% utilization threshold.
Increase your limit on existing credit cards
You may not be looking to open any new credit cards in the near future, and that’s understandable. An easy way to lower your credit utilization is by simply increasing your limit on your favorite credit cards. As long as you’re increasing your credit limit and not drastically increasing the shopping sprees as well, this will likely increase your score.
Get your rent reporting on your credit report
Renters rejoice! Technology has finally caught up to years of consumers’ tireless payments to rental properties. App services like Esusu and Zingo will report your rental payments to Equifax for free. Let’s be honest, it’s always nice to be recognized for the things you’re doing well, and paying your rent on time every single month deserves a little shout-out.
Whether you’re carving the path to building a brighter future for your credit, or your competitive edge is nagging you to see how high your score can get, these simple life hacks could help boost your credit score in no time.
Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.
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