Forget maxing out your credit cards, here are some easy techniques anyone can use to optimize your credit score.
Most of these techniques can be used by those who have both good and bad credit.
I recommend that you try to do as many as possible on an ongoing basis.
Here are 5 simple techniques that you can use to optimize your credit score:
There are two types of credit inquiries that might show up on your credit report. One can negatively affect your credit score, and one doesn’t.
The main thing to keep in mind when it comes to credit inquiries is that a hard inquiry means you are applying for credit, while a soft inquiry is simply you (or someone else) looking at your credit report for reasons other than loaning you money.
So, how many inquiries is too many? As a general rule, you should keep hard inquiries under 2 during any given two year period. Hard inquiries fall off your credit report after two years.
This basically tells lenders that you aren’t actively looking for a bunch of credit. You may start to see your credit score negatively affected once you hit three or more hard inquiries.
Having more than two hard inquiries won’t kill your credit score, but it will likely take a few points off.
There are 4 types of credit accounts on your credit report and the type of account determines how much of an impact it has on your credit score.
I put together the graphic below to show you which types matter the most:
It’s best to keep a mixture of all these account types. It doesn’t mean that you should close your retail cards, it simply means that a real estate loan will more than likely have a bigger impact on your credit score than a retail card or credit card.
Maxing out your credit cards will kill your credit score really fast. Credit vs. Debt ratios are something people often overlook.
Most people think that their credit score isn’t impacted unless they are late on a payment.
This isn’t true! In fact, I would suggest keeping each credit card under 25% utilization. In other words, don’t charge up more than 25% of your available credit on any particular card.
If you have already charged more than 25%, paying it down to under 25% can significantly increase your score. I have written an entire article about credit utilization that you should check out if you want to understand it more in depth.
This one can sometimes be difficult for people who have bad credit, but it should be something you work towards in the long run.
Since major credit card companies usually require decent credit to approve you for one of their credit cards, having one (or a few) shows that they trust you.
This will positively affect your credit score. Again, if you have bad credit, simply keep this in mind and work towards getting to the point where you can get approved for a Visa or Mastercard.
I should also mention that if you don’t have any credit, sometimes major credit card companies will approve you. Consider this your trial period and don’t screw it up 🙂
A mistake that I see people do again and again (and one I did myself, actually) is close old accounts thinking that it will improve their credit score.
A person usually does this because the old account has a late payment or something. The truth is, this isn’t going to make the late payment “go away” –it will still be there.
What you will do by closing an old account is to stop building history for that account.
There are several factors used to calculate your credit score (see chart below), and your credit length makes up a significant portion: 15%.
By keeping old accounts open, the account continues to build credit history and this is a good thing! In the long run, your credit score will usually benefit.
Lastly, you should also always spend some time cleaning up your credit report by removing any collections or late payments. I recommend getting negative entries removed rather than wait 7 years for them to automatically fall off.
This way you don’t have to worry about them affecting your ability to get a loan.
I suggest you check out Lexington Law Credit Repair. They’ll remove the negative items. Give them a call at 1-844-764-9809 or Check out their website.
Your credit score is a trustworthiness rating, based on your credit report. It falls somewhere…
Your credit score is a number assigned to you between 300 and 850 that credit…
Your credit score is a number between 300 and 850 that credit bureaus assign to…
Your credit score determines whether you can apply for a loan, a mortgage, and even…
An auto loan allows you to borrow money to pay for a new or used…
Refinancing your mortgage can save you money, build equity in your home, and leave you…
View Comments
As always, Ryan,
Very pointed and informative advice especially the debt utilization ration, this one I didn't even know! I will apply what I've learned to cross the 720 threshold eventually with my score.
I've made basically every financial mistake in the book: judgments. Chapter 7 bankruptcy, late payments, etc.., so your better credit blog has been so useful to me in making more informed, wise choices about how to rebuild credit and stay educated.
I want to take out an installment loan on a used car with n 638 credit score, do I have to pay a double digit % rate to a finance company or can I find a more reasonable one?
Love to hear your feedback, Drew
Hey Drew - Thanks for the kind words. You might have a difficult time finding a reasonable rate with a credit score under 650. Have you considered putting more money down?
Yes, Ryan
I intend on putting down about $4K on an $8.5K used vehicle. I guess I need the installment loan to really boost my credit. Is there anything else you could recommend in the short term to boost my credit to 650+ (I'm desperate!)--Drew
Take that 4.5 k and pay it to the loan NOT THE down ! Take out the loan for as much as you can then pay directly to the loan to project a reduced balance. Using it at the front (down) still results in a 100% loan ratio. Paying it to the loan will show a huge reduction and a lower balance to origination amount.
First try to get late payments removed... check out my post on how to do this: http://bettercreditblog.org/2008/09/11/3-ways-to-get-a-late-payment-removed-from-your-credit-report/
Also, if you have high credit card utilization, try to chop away at those balances as much as you can.
Do all of my credit cards total need to be under 25% or individually?
Both. See my post on credit utilization for a clear explantation. That should help.