How To Increase Credit Score, Without Paying Down Debt
3 things you can do right away to increase your credit score, without paying down debt or declaring bankruptcy.
To qualify for good or excellent credit, you must get your outstanding credit card balances below 29% of your total credit limit. Credit bureaus call it credit card use, and it makes up 30% of their credit formula.
What if you don’t have enough extra cash to pay down your balances right away?
These are my favorite quick hits when you need to hack the credit bureau algorithm:
- Wait to use your credit cards until after the credit bureau reporting date. (Normally one or two days after the due date on the credit card statement.)
- Increase the credit limit on your credit cards. (Automatically reduces the credit card use percentage.)
- Sign-up for one of the new alternative credit monitoring services. (Gets you extra points on your credit score for monthly payments like rent, cell phone and utilities.)
1. Wait to use your credit cards until after the credit bureau reporting date
The date when your credit card company reports your current balance to the credit bureau is referred to as the credit bureau reporting date. This usually happens at least a few days, or up to a week, after the payment due date on your monthly statement. You want your balance to be as low as possible on the bureau reporting date. A lower balance means a lower credit card use percentage, which is one of the top two factors that impact your credit score. The trick is to send your monthly payment on time to the credit card company, and then wait a few days until after the bureau reporting date before you make any new purchases. This small shift in purchase timing can substantially increase your credit score.
Here is a math example:
You have a credit card with a $1,000 credit limit. You pay the full amount on-time, which leaves a $0 balance. Then you charge $500 in back-to-school purchases before the credit bureau reporting date. The credit bureau sees $500 in charges and calculates 50% for credit card use ($500 in outstanding charges divided by $1,000 credit limit). 50% credit card use is a big red flag, even though you just paid your balance down to zero. If you had waited to make those purchases until after the reporting date, then the credit bureau would have calculated 0% for credit card use ($0 in outstanding charges divided by $1,000 credit limit). The credit score calculation would be based on zero credit card use, which gives you a big green flag for low credit risk.
Where to find credit bureau reporting date:
You can find the credit bureau reporting dates for all your credit cards when you sign-up for a free credit score check with a company like Experian, Credit Karma or Credit Sesame. These dates are normally found in the section of the report called Credit Card Use.
2. Increase the credit limit on your credit cards
A higher credit limit will increase your credit score automatically. This is another tactic that reduces your credit card use percentage.
Here is a math example:
You carry a balance of $500 on a card with a $1,000 credit limit. The credit bureau calculates 50% for credit card use, which puts you in their red zone for high risk. However, that percentage would drop down to 33% credit card use with a $1,500 credit limit. And it would drop down to 25% credit card use with a $2,000 credit limit. The 25% credit use gets you a green flag for responsible credit behavior, even though the $500 amount of outstanding charges has not changed.
How to get a credit limit increase:
Most credit card companies will increase your credit limit after 6 months – when they see no late payments and an outstanding balance that is less than 29% of the credit limit. Some cardholders send two or even three payments each month to make sure their outstanding balance stays below 29% of the credit limit. Do not worry about making multiple payments in one month. Credit card companies love getting paid. They do not care if you send a big payment or several small payments.
Some banks will increase your credit limit without any notice to surprise and delight their customers. If your bank does not increase your line automatically, then do not be afraid to call and ask for a credit line increase. This call can be easier than it sounds. Tell the customer service representative that you would prefer to consolidate all your purchases on their credit card, but your current credit limit is too low. You will be surprised how often the bank says “yes.”
About a year ago I applied for a zero-interest rate balance transfer credit card, and the bank gave me a $3,000 credit limit. The balance was paid down to avoid any interest, and the card has been sitting in a drawer. When I called the customer service number on the back of the card, the automated system increased my limit to $5,000 without having to talk to a live person.
Remember that credit card companies want to keep your business. They will do everything they can to save your account when they see a history of on-time payments each month.
3. Sign-up for an alternative credit reporting service
Most credit bureaus have not changed their formula in more than 125 years. They still calculate credit scores with information from credit cards, personal loans, mortgage loans and car loans. However, some credit bureaus like Experian are starting to include payment history for things like apartment rent, cell phone bills and utility bills. They believe these alternative credit indicators are highly predictive when it comes to forecasting credit risk. Experian Boost is one of the new services that tracks these alternative payments, and it is free to sign-up. Their website says the average score increases by 13 points, but they claim that many subscribers see their scores go up by 18, 28 or even 50 points.
Alternative scoring services can help you create a history with the bureaus when you are new to credit. Or they can help nudge up your current score. Sometimes this little boost is enough to move you from a poor rating up to a fair rating, which could help you qualify for credit cards, car loans and other personal loans.
Summary of how to increase your credit score
This article shows you 3 quick ways to increase your credit score, without paying down the balances on your credit cards or personal loans:
- Wait to use your credit cards until after the credit bureau reporting date.
- Increase the credit limit on your credit cards.
- Sign-up for an alternative credit reporting service.
When you are working to “fix my credit score” it is important to take advantage of every opportunity that will push your credit score a little bit higher. Together these 3 tactics could easily raise your score by another 50 to 80 points, which is a real plus when you do not have the extra cash on hand to pay off your outstanding credit card balances.