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Raising Your Credit Score

Part of my job is helping my clients own their credit score. This means guiding them and helping them understand what direction their daily money decisions are driving their credit score. Many people take well-meaning advice from family and friends on how to raise their scores. Unfortunately, this can sometimes backfire. Let's go over a few things that, when kept in proper balance, should help your credit score steadily rise:

  1. Pay your credit card bill on time.

  2. Don't use too much of your available credit.

  3. Keep your debt-to-income ration low.

These three things are easy to put into a list onto the Internet. Let's break them down a bit further into how they look in every day life.

1. Pay your credit card bill on time.

This means that you never let your credit card bill get paid late. You get your statement in the mail or through email and you ensure at least the minimum payment owed is sent in before the due date. This can be a habit you build each and every month. This helps you build credibility about your responsibility to pay back the money you have borrowed from the credit card company.

2. Don't use too much of your available credit.

You have certain limits on your credit accounts. These are set by the company based on their evaluation of how much you credit you can be responsible with. If you are maxing out your card(s) every month, this doesn't show that you are responsible with credit. In fact, it shows you are willing to ride a somewhat reckless line. In the eyes of the credit card company, you may be more likely to declare bankruptcy than pay back the money in a timely manner.

Here a strong budget is helpful. Keeping certain expenses within reasonable limits and putting only those expenses on a credit card help keep you from utilizing too much of your credit.

3. Keep your debt-to-income-ratio low.

Sometimes we think that if we borrow money, our credit score will go up. So, we go and borrow as much as we can afford. Unfortunately, this gives a high debt-to-income ratio that looks bad to the creditors. Again, seeing that you have almost crushing debt obligations doesn't show responsibility. Working to reduce that debt-to-income ratio by paying down cards and other loans can, almost counterintuitively, have a positive effect on your credit score!

This is just a quick overview of how you can enact some of these changes to start driving your credit score higher. There are more things you can do and we can cover those later. For now, especially as we enter the holiday shopping season, I encourage you to consider taking more proactive steps to own your credit score.

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