If you follow these tips, it will have a positive impact on your credit score.
- People often want to know the best ways to increase their credit score.
- Suze Orman has some simple and effective tips that can help you.
- The financial guru recommends keeping credit usage to a minimum and paying everything on time.
Your credit score is that ever-important number that plays a huge role in your daily life. It determines which credit cards you qualify for, how much you pay for auto and home loans, and more. Simply put, life is much easier with a high credit score.
For those looking to improve their credit rating, financial advisor Suze Orman has some great, easy-to-follow advice. In a recent episode of her podcast, she gave three recommendations to a listener trying to get better credit.
1. Don’t keep high balances
Orman’s first piece of advice is “don’t have high balances, or no balances at all on your credit cards”. High balances translate to a high credit utilization rate, which is one of the most important components of your credit score.
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Your credit utilization rate is calculated by dividing your card balance by your credit limits. For example, if you have a credit card with a balance of $1,000 and a credit limit of $5,000, your credit utilization is 20%.
It’s normally recommended to keep your credit utilization below 30%, but the more you can get, the better. That’s why Orman recommends that you don’t carry balance at all if you can avoid it.
Remember, this doesn’t mean you should avoid using your credit cards. In fact, Orman suggests continuing to use credit cards and paying them off in full each month.
2. Pay everything on time
Orman’s next tip is “make sure you’re never late on a payment.” This is essential, because nothing impacts your credit score more than your payment history.
How payment history works is quite simple. When you pay your credit card bill on time, or any bill flagged on your credit report, it improves your payment history. But even a single late payment can seriously hurt your credit score.
It is important to clarify that there is some leeway on what is considered late payment. Technically, a payment cannot be reported as late to the credit bureaus until it is 30 days past due or more. Either way, you could end up with late fees sooner than that, so it’s always best to pay bills before the due date.
3. Ask card issuers to increase your credit limit
While not a must like the previous two tips, Orman mentions that you can “call the credit card companies and ask them to raise your credit limit.” Specifically, it’s a good idea for anyone who has balances on their credit cards.
This ties back to what we covered earlier, your credit utilization rate. If you have high credit usage that is impacting your credit, one solution to reducing your credit usage is to pay off those balances. However, it’s often a gradual process, especially if you’re trying to get rid of your credit card debt.
Another option is to increase your credit limit. For example, if you have a balance of $5,000 and a credit limit of $10,000, your credit utilization of 50% would be high. If you were successful in raising your credit limit to $20,000, that would cut your credit utilization in half and bring it back into a healthy range.
Keep in mind that this can backfire if you get a bigger credit limit and start spending more. For best results, you should always make sure to pay off as many of your card balances as possible until you’ve cleared your debt.
Credit scores may seem complicated, but improving them really isn’t. If you follow Orman’s advice, especially the first two tips, you’ll be well on your way to a high credit score.
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