Getting and maintaining a good credit score can open doors to many benefits in the financial world. You can get credit cards with better rewards, lower interest rates on loans, and are more likely to get approved for larger loans. With the new year quickly approaching, it is the perfect time to set your focus on improving your credit score. Practice the techniques below to help achieve and maintain a good credit score in 2020.

1. Pay the Minimum Payment Requirement for Your Credit Card Balance Each Month

The most well-known tactic to get a good credit score is to always pay the minimum payment on your credit card each month. When you fail to pay off the minimum payment set by your bank each month, it will take a hit to your credit score. If you decide to apply for a loan or a new credit card within two years, your credit history will reveal your lack of payment. So, pay close attention to when your payment is due and the minimum amount you must pay.

In addition to paying the minimum payment on your credit card each month, be sure you pay off any monthly bills or loans. Just as your credit score lowers from neglecting to pay your credit card balance, not paying your car or house payment lowers your credit as well. To avoid this, be sure you have enough money in your checking account to pay your bills and loans by managing your spending. This can be easier said than done, but being able to pay your bills each month will be worth the hard work that budgeting takes.

2. Get a Higher Credit Limit

First and foremost, if you have a habit of overspending and failing to make credit card payments, this method is not recommended. However, if you are able to manage your spending and stay on top of your credit card payments, asking for a higher credit card limit may be helpful when trying to raise your credit score. As you may know, many professionals recommend that you keep your credit card balance under 30% your credit card limit.¹ This is what is referred to as a credit utilization rate. The higher your utilization rate is, the less your credit score will improve month to month. So, it is recommended to shoot for a utilization rate of 30% or below.

Keeping your credit utilization rate below 30% can be difficult if you have a credit limit of $300 to $500, so getting a higher credit limit can make maintaining a lower utilization rate easier. If you have a credit card limit of $300, you can only have a balance of $100 if you are shooting for 30%, and $30 if you are shooting for 10%. Now if you had a credit limit of $1,500, you could maintain your credit usage at or below $150 and still be within your target 10% limit. This is why a high credit limit can be helpful when trying to raise your credit score. Keep in mind, asking for a higher credit limit can take a hit to your credit score, but once you get approved, it may be easier to raise your score in the future.

3. Have a Long Credit History

Your credit score increases as your credit history gets longer. The people who have the highest credit scores have had and have been using credit for a long time. This is because when you have a history of credit, you are more likely to know how to manage your finances and have had time to build your credit. It is generally preferred to have a credit history dating back over five years, and having a credit history of over 30 years is excellent. So, you will have to be patient and continue to pay your credit card each month, watch your credit utilization rate, and pay your loans on time for this one. This is not to say you will not have a great score if you have a credit history of only a few years. It just means you are not reaping the benefits of having a long history… yet!

4. Be Careful of Hard Inquiries

When you apply for a new credit card or loan, you create a hard inquiry on your credit report. The financial institution that you are applying with will run a credit history check to see how you have done in the past with making payments. Each time this happens, you will see your credit score lower–even if you get approved. These hard inquiries will show up on your credit history for about two years. So, you should do some research to see if you have a good shot of being approved.

Before applying for several different credit cards or applying for an auto loan, see the requirements to qualify for acceptance. Most financial institutions are open and clear about who they approve for each credit card or loan type. Find this information and eliminate the ones you are uncertain if you would be approved for. This will help you to only have one hard inquiry on your report, as you get approved after the first application. On the other hand, if you know you will be applying for a loan in the next year or two, avoid making a hard inquiry as much as possible. This will keep your credit score high and will increase your chances of getting approved for your loan.

5. Keep Unused Credit Cards Open

Something that many people don’t know is that keeping unused credit card accounts open can be beneficial for their credit score. When you have a credit limit on one credit card but have no balance, your credit utilization rate will be lower. So, if your credit card has no annual fees, it may be a good idea to keep your old credit card around.

Raising Your Credit Score

As you set out on the journey of raising your credit score in 2020, keep in mind that your score will not increase overnight. While practicing techniques like paying your debts on time and maintaining a lower credit utilization will have a positive effect on your credit score, it will still take time and consistency to achieve and maintain a great credit score.

Navigating your finances can be difficult, especially when combined with your daily responsibilities to your career, your family, and your own well-being. If you ever need help on your financial journey, contact us at Dayton & Sydney WSG and our professionals will be glad to discuss your options when it comes to retirement planning, investing, life insurance, and more!

¹ “How Your Credit Score Impacts Your Financial Future”, FINRA, March 27^th, 2007