How to Easily Improve Your Credit Score
MartinRaymondo
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MartinRaymondo 〰️ 〰️
The FICO, or credit scoring system, is a joke.
It doesn’t determine if you’re winning with money; it only determines how good you are at paying back debt.
If I dropped 10 million dollars in your lap today, your credit score would not change. I am not the credit score’s biggest fan. You can get by fine without any credit score.
It might take a bit more finessing and work to figure some things out, like finding a car rental agency.
Some out there will work with you without a credit card, but you have to call around to find them. I worked in the banking world for six years and picked up a few “insider secrets.”
I use quotations as they aren’t secrets, but the bank doesn’t give this information away.
How is your credit score calculated?
Five compartments divide your credit score. We don’t know the exact calculations for any algorithm, but we have a close approximation.
Payment history: 35%. This is the most important of all the steps. You must make your payments on time; otherwise, your score will drop.
Credit usage: 30%. This is as important as the first point. These two steps make up most of your total credit score. This means you want under 30% usage on all your credit. Say you have two credit cards with a $5000 line of credit. You’ve got a total credit limit of $10,000. To stay below 30% utilization, aim for a total balance of $3,000 or less. For example, you could have one card with no balance and the other with $2,900. This one is crucial to boosting your total credit score, and it’s easy if you’re new, as your balances will be zero.
Credit history: 15%. This is how long your credit has been around. Companies like to see that you can manage credit for years to come.
Public records: 10%. They want to know if you had any bankruptcies or judgements against you.
Inquiries: 10%. Any hard inquiry will drop your credit a little. A soft inquiry is acceptable; many places do that now, so there is no need to worry.
The Trick
The last three categories don’t significantly influence your score.
Don’t apply for ten credit cards or get judgments against you. It won’t help your situation. If you’re new to credit or have credit but haven’t used it, then that’s perfect.
All you need to do is keep your usage under 30%, and your credit will increase.
The key here is to use your credit so that your statement date shows an amount owed. Your usage and previous payments depend on the snapshot of your statement date.
For instance, if you have a $1000 limit and spend $950 but pay $900 before the statement date, the report will show you owe $50. Ensure your payment has a few business days to post and be aware of your statement date and bank posting rules.
If you have credit already but owe more than 30%, I first suggest you make all your payments on time.
After that’s cleared up, you can open a new line of credit to lower your usage to 30%. If you can’t get any more credit, pay down what you owe by shutting down your life.
To illustrate how terrible this credit system is, I will give you an example.
You and your friend apply for a credit card and receive $5000 each. Your friend spends close to his $5000 limit every month, and you spend $20 monthly.
You pay off the card in full and do this for six months.
You’ll have a better credit score than them, even though they made more money for the credit card company.
I told you it was a terrible system.
Your best option is to avoid having a credit score altogether and remain invisible in the system. But if that’s not your plan, follow this system to succeed.