Interesting Money

Or perhaps I should title this post, “Two Good Ways to Deplete your Credit Score.” Either way, two main factors for getting (and keeping) a high credit score are:

• Pay ALL of your bills on time

Nothing hurts a credit score more detrimentally (aside from declaring bankruptcy) than paying bills late. Most companies will excuse a payment that’s late by a day or two, but if you hit 30, 60, or (watch out!) 90 days late, then your credit score will sink like a rock. Late payments also stay on your credit report for up to seven years, so one forgotten payment can cause a lot of suffering.

• Increase your credit limits

Increasing your available credit limit does a couple of things. First, it shows that credit card companies place more trust in you by giving you a higher allotment of potential debt. Secondly, it drops the utilization of any debt that you are currently carrying with said credit card company.

For example, if you have a $5,000 credit limit for a particular card, and you currently have a $2,500 balance, you are utilizing 50% of your available credit. While you maintain that much utilization, it will have a temporary negative impact on your credit score. However, if you carried the same balance on a card with a $10,000 limit, your utilization would only be 25%, making you much less “risky” to the credit card company.

I hesitate to give specific recommendations, but from what I’ve read, carrying less than 30% utilization is best for increasing (or maintaining) a credit score.

How do you increase your credit limit? If you have online access to your credit card(s), many offer the option to simply request a credit limit increase online. My HSBC and Chase cards have this option. Others only allow for increases if you call them, such as Discover.

Just today I called Discover, since my card only had a $5,000 credit limit. Within minutes I was able to speak with a live person, who asked me how much I wanted to increase my limit. I asked for $6,500, and he immediately approved it. I probably should have asked for more, but I did not want to trigger a hard credit inquiry. This new limit will suffice for now.

How often should you request an increase? Part of it depends on the age of the card. Some companies will decline all requests until you’ve had the card for at least six months. After that, requesting a limit about every three months is safe. That’s what I plan to do anyway. I’m going to shoot for at least a $1,500 increase on all my cards every 3-6 months.