Raising your credit score (and keeping it up) is often a long game. I recently saw mine jump by 100 points -- but that increase took eight months of hard work and dedication to good credit habits.
Your credit score is based on five different factors, and for your FICO® Score (the one used by 90% of lenders), the most impactful one is absolutely a reflection of that long game. Payment history accounts for a whopping 35% of your FICO® Score. However, there are two other ways to get your credit score up significantly before 2024, and both of them address your credit utilization ratio.
Wait, what's a credit utilization ratio?
I'm glad you asked! (After all, it's my job to answer questions like this one.) Your credit utilization ratio is the percentage of revolving credit (like on a credit card) you are using relative to how much total revolving credit you have.
As an example, let's say you have three credit cards -- one with a credit limit of $7,000, one with a limit of $5,000, and one with a limit of $3,000. Your total credit limit across these three cards is $15,000. But you're carrying a balance of $2,000 on the first card, $1,800 on the second, and $1,200 on the third. Your total usage is $5,000, and you have a credit utilization ratio of 33%.
That 33% is a little high; it's recommended that you keep your credit utilization ratio below 30%. And coincidentally, this number is reflected in your FICO® Score to the tune of 30%. It's the second-most significant factor, after payment history. It makes sense that it would be so heavily weighted, too. If you're carrying a higher percentage of debt, it could mean that you're struggling to cover your everyday expenses with cash and must rely on credit, and this could make lenders nervous about extending you additional credit. If you want to see a credit score bump sooner rather than later, try these ways to improve your credit utilization ratio.
1. Focus on paying down your debt
Paying down existing debt is a very impactful means of improving your credit score -- it's what I did to get my credit score to "exceptional." It's not easy to pay off debt, and unless you can somehow cut out all your nonessential spending (and it totals a big part of your budget), you'll most likely have to increase your income to do it.
This could mean getting a significant raise at your current job, taking on a side hustle (and cutting into your free time), or changing jobs altogether. But if you can do it, this is a productive way to boost your credit score. And if you can start now (and be aggressive), you may see that 50-point increase before 2024 arrives. In our example above, if you manage to pay off half of your existing debt ($2,500), you'll take your credit utilization ratio down to about 17%.
2. Increase your available credit
This means of boosting your credit score more quickly might be more available to you, but it will likely depend a great deal on your current credit score. If you're already in good shape, a credit card issuer will probably be more willing to consider increasing your credit limit. You can request an increase in your card issuer's mobile app or on its website, or you can call customer service.
Be careful though, as in some cases a credit card issuer will do a hard credit check to determine eligibility, and this will ding your credit score. This isn't always required for an increase, though, and you'll be informed if it is. From our example above, if you can get your $7,000 credit card increased to $9,000, your new total credit limit will be $17,000 and your new credit utilization ratio (with $5,000 owed between cards) will be 29%.
If you paid off half of your debt and got the increase, your credit utilization ratio will be about 15%. Just be sure you don't add any more debt to your current load to feel the best impact from a credit limit increase.
Got more time to boost your credit?
Since building and maintaining a solid credit score is best done over the long term, you could start making these moves now and keep them up:
- Focus on those on-time payments: Every month, every time. If you struggle to remember due dates, consider automating your payments.
- Apply for new credit sparingly: Remember, applying for a new loan or credit card lowers your credit score by a few points (because of a hard credit check). For this reason, it's best to spread out your applications.
- Keep old accounts open: If you have old credit cards you don't really use anymore, keep them open anyway (especially if they don't charge annual fees). Length of credit history makes up 15% of your FICO® Score. Plus, they'll add to your available credit and improve your credit utilization ratio.
Ultimately, if you can improve your credit utilization ratio in short order, that will be the best way to markedly boost your credit score between now and 2024. This isn't going to be possible for everyone, sadly. But if you focus on the long game, you can boost your credit score over time.
