A common question you are faced with daily… “How do I increase my credit score?” Everyone knows you need a high credit score to buy a car or house here in Atlanta. But what happens when your score isn’t high enough? You try to build it quickly in a short matter of time, but getting your credit score close to 850 is a long process. Most people do not understand this.
The Basics of Increasing Your Credit Score Report
It’s easiest if you can focus on the smaller, simple aspects first. There are multiple ways to earn credit, including purchasing a credit card, taking out a loan, getting a co-signer for a loan, or becoming an authorized user on someone else’s credit card. Each is a great start, yet there are six factors that ultimately affect your FICO, or credit score.
- On-Time Payments
This can be confusing for customers because they don’t understand the difference between “current balance,” “last statement balance,” “last posted”, and “minimum amount due,” which are all options on the typical credit card app. A lot of customers think they can pay the minimum amount, but then they get charged interest and money starts to get tight. Encourage your customers to only spend money on their credit cards if they have the money in the bank. This will help reduce the amount they spend, making it easier to pay their current balance so they don’t get charged with interest. You may also want to mention that once you miss a payment, it is very hard (and expensive) to get out of debt. For customers that are already in credit card debt, suggest that they don’t spend money on their credit cards anymore, and instead focus on paying off what is already due.
- Oldest Credit Line
This is something that will take time to establish. For beginners, encourage them to start with a line of credit as early as possible. Even eighteen-year-olds can buy a credit card or get a simple loan at a bank. A lot of high school and college students in Atlanta can receive low or waived fees for being a student. Unfortunately, the date of your oldest credit line is not something you can change. Express to your customers that the earlier they can get a line of credit, the better.
- Credit Used
Encourage your customers to not spend the full amount of credit they have. If they spend a lot of money on their credit cards, their score will go down. Start by telling them if they want their credit score to increase, they should try not to use their credit cards at all. Spending some, maybe 1-2% of available credit is good, but do not spend all of it. This part of your credit score basically measures self-control—it wants to know you have a lot of money to spend, but choose not to spend it.
- Recent Inquiries
Recent inquiries include credit line attempts within the past two years. If you have more than five, it makes you look untrustworthy because, to the credit reporters, it appears you are looking for additional sources of money. Lenders view this as risky. 3-5 inquiries over the past two years is average, 1-2 is good and none is excellent. Tell your customers to try and wait a year or two before they get a new credit card, apply for a loan, or even co-sign a loan with someone else.
- New Accounts
This is probably the hardest area for credit score improvement, especially for beginners. You get penalized if you have more than six accounts opened within the past two years. Try to only open three accounts within a two-year period. This is considered excellent from the credit score companies. A good credit score includes 3-4 new accounts and average includes 5-6. Luckily, over time this score will get better if you slow down on opening new accounts. Communicate to your customers to think ahead and think about if they plan to purchase a new car, new house, or take out a loan for Christmas. To improve their credit score, they should only open three new accounts in two years.
- Available Credit
Available credit is a sum of the money you have access to across all your accounts. Less than $2500 is below average, $2500-$15,000 is average, $15,000-$50,000 is good and above $50,000 is excellent. Make sure your customers know increasing their available credit without opening too many accounts is difficult and takes time. Also, they should not open a new loan without fully paying off previous loans.
Other Tips & Tricks
In addition to the previous advice, there are a few other tips and tricks your customers can try to increase their credit scores. Instead of paying their bills off in full each month, tell them to try making weekly payments instead. This may not be possible at all businesses, but will help bump up their score overtime.
A simple credit score improvement includes having multiple credit cards, but only using one. You can tell your customers to apply for a few over the years and to put one in their wallet and the rest in a drawer at home. By only using one card, it makes paying the bills and keeping up with expenses much easier than having several used accounts. This will also improve your credit used section and positively impact your credit score as well.
Advise your customers to be weary not to open multiple credit cards at one time. Closing unused credit cards, in addition will negatively impact their credit score. Tell your customers to try downloading a credit card app that can send push notifications to notify them when a payment is due.
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