How Spending Can Actually Help Your Credit Score
If you want to increase your credit score, consider charging more to your credit cards.
I know it sounds counterintuitive, but if you plan it correctly, you can bump up your score without changing your monthly budget.
1. Quit using cash.
Using cash may help you budget for gas and groceries, but it is not doing anything to boost your credit score.
Instead, charge everyday purchases and set money aside to pay the bill at the end of the month. You want to show the bank you have a need for a higher limit.
This is risky if you struggle with self-control, but it will pay off in the long run. Plus, it will help you rack up rewards points.
Aim for a ratio of no more than 50 percent of your maximum limit, and do not spend any more than you normally would with cash.
2. Pay your bills.
It accounts for 35 percent of your FICO score, so missing a single payment can be disastrous.
To show the banks you use credit reliably, you must show you are serious about paying down debt.
If you must roll over part of your monthly balance, do not accumulate new debt. Your credit card bill should shrink every month.
So how do you do that if you are charging more to your credit card?
Do not spend more. Spend differently. If your spending stays the same, it should make no difference whether you use cash or credit cards for purchases.
The key is having the self-control to set aside cash to pay off the bill.
“It is essential that you
pay your bills on time.”
3. Ask for a higher limit.
If you charge more to your credit card and pay your bills on time, many credit card companies are happy to increase your limit. You have to ask.
Do not expect a $10,000 raise, but even the smallest amount will help your credit score.
The key here is you must keep your spending the same to change your debt to limit utilization ratio.
That ratio is the amount you spend compared to the total amount you could spend if you maxed out all your credit cards.
Any credit limit increase will decrease your ratio, and a debt percentage lower than 30 percent will give you a nice credit score bump.
4. Do not get new credit.
Once you start to knock down your debt, you may start to get promotional mailings offering new credit cards. Do not fall for them.
Every time you open a new credit card, the bank will do a hard inquiry on your credit report. Ten percent of your FICO score is affected by new credit inquires. It will hurt your credit score.
Instead, ask your existing credit card companies for another limit increase. As long as your spending remains the same, your credit utilization ratio will continue to shrink and your credit score will improve.
5. Charge on the oldest cards.
Your length of credit history makes up 15 percent of your FICO credit score. Closing out old accounts will drop your score, so hang onto those old cards.
Charge small amounts every couple of months to keep the credit line open. You can also assign an automatic payment to the card, like a monthly gym membership, to ensure it is constantly used.
Anyone can increase their credit score with the right plan. You can boost your score, without slashing your budget, by simply spending your money differently and paying your bills on time.