If you’re interested in improving your credit score, there are a number of different things you can do to improve it – such as paying bills on time, eliminating extra credit card debt, and checking your credit report for errors and misinformation.
One of the best ways to improve your credit score, though, is by keeping your credit utilization low.
Credit utilization is a measurement of how much debt you are carrying, compared to the total dollar value of your open credit lines.
For example, if you had 2 credit cards with a combined credit limit of $2,000, and you had $250 on each card, your total credit utilization ratio would be 25%.
Essentially, the lower you keep your credit utilization, the better your credit score will be. Ideally, you want to keep it at around 20%, for the best results.
So, how can you keep your credit utilization low, and boost your credit score quickly? Here are some tips.
1. Don’t Close Old Credit Cards Once You Pay Them Off
One mistake that some people make – especially when getting out of debt – is closing all of their unused credit card accounts once they’ve been paid off. This does seem like a good idea. After all, the fewer credit accounts you have, the harder it will be for you to get back into debt, right?
Well, it’s not really a good idea to close your old credit accounts. This is because, even if you don’t use them, they contribute to your total maximum credit line. If you close an old credit account with a high credit line, your debt utilization may spike – and your credit may be negatively affected.
In general, you should not close your credit accounts, unless there are high fees associated with inactivity that make them a poor long-term investment.
2. Pay Your Credit Cards Off Weekly Or Bi-Weekly
If you pay your credit cards off regularly, you can easily reduce the total utilization of your credit line. This is an especially good idea if you only have one or two credit cards.
Paying your credit cards off more regularly also helps you develop better financial habits. You won’t have to worry about spending more money than you have.
3. Request Credit Line Increases
One simple way to decrease your total credit utilization is to request credit line increases on your credit cards. However, you should only do this if you have improved your credit score quite a bit.
This is because if it’s the same as when you first applied for a card, you probably won’t get approved, and a credit line increase can cause a “hard inquiry” into your credit history, which can result in the loss of a few credit points.
Still, this is a simple and effective method of decreasing your debt utilization, and increasing your credit score.
4. Consider Opening A New Credit Account
Opening a new credit card or two may be a good idea, especially if you can qualify for a credit card with great rewards, such as cash back on groceries.
You should take care when doing this, as some applications for credit cards can negatively harm your credit. But if you can’t qualify for a credit line increase, getting a new credit card may be the best way to increase your overall credit limit.
Use Credit Cards Wisely – And Boost Your Credit!
A good credit score is the best way to get great terms on an auto loan. And if you use credit cards responsibly – and keep your credit utilization low – you can boost your credit score by quite a bit.
Need a car in Canada, but don’t have good credit? No problem! At Ride Time, we focus on getting great cars for Canadians with sub-par credit scores. If you’re still rebuilding your credit, we’re happy to help!