Credit cards can help your credit score
Image Source: Flickr CC User Ed Ivanushkin
Many consumers don’t truly understand how credit scores are calculated and are surprised that their scores don't improve despite their best attempts. That’s because the FICO calculation is complex and involves factors that North Carolina consumers might not be aware of. Here are three simple steps that can help improve your score.
#1 Pay Down Credit Card Debt – Then Keep it Low
Credit card utilization is an important factor in your credit score. You need credit cards and a mix of other credit lines and debt to keep your credit score on the rise. After bankruptcy, some NC consumers don’t want to end up in credit card trouble again and may try to avoid them altogether. That’s admirable, but without credit cards, your score will never be as high as it could be.
Instead, having credit cards and learning to use them with restraint and discipline is key. First, you should never have more than 30 per cent of your credit line consumed when your credit card statement closes each month – but even that amount can lower your score depending on your income, credit score range and other factors.
The safest approach is to use your credit cards each month, then pay off the balances in full. To do that, don’t use your plastic for things you don’t need. Use your cards to fill your gas tank, buy groceries and pay bills since that’s money you'd need to spend anyway – then turn around and pay off the card in full on your payday just as you would use the money to pay those bills. That way, you’re using your card without amassing debt.
#2 Work Toward Credit Limit Increases
Having higher lines of credit can increase your credit score, as can using only a small percentage of them. If you must carry some credit card debt, having high limits means that the debt represents a smaller percentage of your total line of credit.
For instance, if you’re stuck with $2000 of debt you’re trying to pay down on a total credit line of $5000, that’s 40 per cent utilization. That’s high and can lower your score. But if your credit lines are bumped to $10,000, four grand is just 20 per cent utilization. With a $20,000 credit lines, that $2000 is just 10 per cent utilization. That’s even better.
So how do you get your credit lines increased? Simple. Use your cards often. Pay off your balances. Never make a late payment. Never make a payment lower than the minimum. Sometimes credit limits are raised automatically to reward good customers, and sometimes you have to ask. Don’t be afraid to ask for a credit line increase – the worst the card issuer will say is no. If you’ve been making on-time payments and using your cards, make the call to all of your card issuers to ask for increased limits. In some cases, you can request a credit line hike via their website.
#3 Set up Alerts for Your Credit Reports and Card Statements
Keeping inaccurate info off of your credit reports and protecting yourself from fraud and reporting errors is important, especially since it can be much harder to clean up mistakes, errors, or identity theft the longer it goes on. By signing up for credit score and credit activity alerts, you’ll know right away if something changes on your credit score.
Careful monitoring will let you know if your credit score is increasing or decreasing, which is important. But it also lets you know when new accounts or credit cards are opened. If you didn’t open them, you can get them shut down ASAP so that fraudulent activity doesn’t ruin the credit score you’re working hard to improve.
Use text alerts on your credit cards as well. By setting these up, you’ll know instantly if someone has stolen your card (or card info) and is using it for unauthorized activity. You can also set alerts to let you know if you’re getting close to your card limit, or to notify you about payment due dates so you never run late on a bill.
To find out more about improving your credit score after bankruptcy, contact Credit Score Keys. We help North Carolina consumers get their credit scores back on track after you get debt relief from Chapter 7 or Chapter 13 bankruptcy. Call 919-495-2365 to learn more today.