Your credit score is a way of measuring your creditworthiness, so it’s extremely important in certain situations. If you want to apply for one of the best credit cards, it helps to have a high credit score. The same is true if you’re hoping to get a low rate on a loan, such as a mortgage.
Many people believe that raising your credit score is a slow, difficult process, but that’s not always the case. Depending on your current situation, there could be an easy way to do it in as little as one month.
Ask for a higher credit limit
If your credit card balance is hurting your credit score, there’s a simple solution. Ask the card issuer for a credit limit increase. You can do this by calling the number on the back of your card. Some card issuers also let you request a credit limit increase through your online account.
The reason this works is because of a credit scoring factor known as credit utilization. Every month, your card issuers report your credit card balances and the credit limits on those cards. Your card balances are divided by your credit limits to calculate your credit utilization.
High credit utilization is bad for your credit score. While there are not exactly thresholds for “good credit utilization” and “bad credit utilization,” there are general guidelines. Keeping your credit utilization under 30% is recommended to avoid damaging your credit score. Staying under 10% is ideal and could have a positive impact on your credit score.
If your card’s credit limit goes up, and the balance stays the same, then your credit utilization will decrease. Now, let’s look at what kind of an impact this could make.
How a credit limit increase could improve your credit score
Let’s say you check your credit score online using a free credit score tool. It’s not as high as you’d like, and one of the reasons is your credit utilization. You have one card with a balance of $2,500 and a credit limit of $5,000, for a credit utilization of 50%.
Now, you’ve had this card for years, and you’ve always paid the bill on time. You’re also making $15,000 more per year than you were when you first applied for the card.
You call your card issuer and ask for a credit limit increase, making sure to mention you’re earning more money. The representative updates your income. Based on that, and the fact that you’ve been a model cardholder, you’re approved for a $10,000 credit limit. In one phone call, your credit utilization has effectively gone from 50% to 25%. You have the same $2,500 balance, but a $10,000 limit instead of $5,000.
Reducing credit card balances by 25% could raise your credit score by over 50 points, according to FICO. The exact amount depends on your credit profile. If you already have good or excellent credit, you won’t get as much of a bump as someone with a lower score. But it will almost certainly have a positive impact, and it could be a sizable one.
Be careful if you’re approved for more credit
Having a higher credit limit can help your credit score, but it’s not without its risks. You’ll also have more spending power, which can be a problem if you overspend on your credit cards. Only ask for a credit limit increase if you’re sure you won’t use it and get deep into debt.
If you’re already struggling with credit card debt, look into balance transfer credit cards. These have a 0% intro APR on balance transfers, so they can help get rid of credit card debt.
The best way to use your credit card is to pay it off in full. When you pay the entire statement balance every month, you avoid interest charges, which are one of the biggest credit card expenses.
Paying off your credit card in full and not overspending are often enough to keep your credit utilization low. But if you have a large balance that’s dragging down your credit score, or if you regularly have high credit utilization even though you pay in full every month, increasing your credit limit could help.
