Your credit score is a number you may not think much about until you’re ready to apply for a new personal loan or credit card. But it’s a number that could impact your ability to borrow in a meaningful way.
Your credit score paints a picture of how risky a borrower you are. If your score is excellent, it tells lenders and credit card issuers that you’re very likely to repay your debts when you’re supposed to. Because of this, a higher credit score not only increases your chances of getting approved to borrow money, but could lead to a lower interest rate.
On the other hand, poor credit sends the message that you’re a higher risk. And in that case, a lender or credit card issuer may not want to extend credit to you for fear of not getting repaid. That’s why it’s so important to try to raise your credit score if it’s not in the best shape.
How to raise your credit score
There are several effective ways to boost a credit score. One is to pay all bills on time, since your payment history carries more weight than any other individual factor when calculating a credit score.
Another good way to snag a credit score boost is to lower your credit utilization ratio, which measures how much of your available revolving credit you’re using at once. Generally, it’s best to keep that ratio to 30% or less.
So if you owe $4,000 on a total credit limit of $10,000, you’re at 40% utilization. Paying off $1,000 of your balance puts you at $3,000, which gets you to that more optimal 30% target.
But paying bills on time and whittling down credit card debt can take time. And you may be eager to see your credit score rise sooner. The good news is that there’s an easy step you can take to get a quick credit score boost. But you’ll need to be careful if you use this particular trick.
A credit limit increase could work wonders for your credit score
It could take many months to establish a timely bill-paying history, and even longer than that to pay off a large credit card balance that’s driving your utilization up. So if you want to see your credit score climb quickly, a good tactic is to ask your credit card issuers for a credit limit increase.
Often, issuers will say yes if you can prove that your income has increased. And even if not, you’ll often get that increase if your account is in good standing — meaning, you’ve made all payments on time, even if you haven’t made them in full and therefore still have a balance.
A credit limit increase essentially lowers your utilization without you paying off any of your balance. Let’s revisit the example above of owing $4,000 on a $10,000 spending limit. If you were to get your credit limit across your various accounts raised to $13,500, even without paying off a dime of that $4,000, you’re suddenly at about 30% utilization.
Of course, it’s always good to try to pay off existing credit card debt, because the sooner you do, the less interest you might rack up. But if you need a quick boost to your credit score, getting your credit limit raised is likely to be a more efficient way to go about it than paying off your balances, which could take a long time.
Be careful when asking for a credit limit increase
A credit limit increase is a fairly easy way to boost your credit score in short order. But if you go this route, you’ll need to be careful.
This tactic only helps your credit score if you don’t charge additional expenses against your higher credit limit. If you get a credit limit increase but increase your spending and balances at the same time, you’re not going to help your credit score improve. If anything, you’re only going to put yourself in a position where you owe even more money and rack up additional interest charges.
Plus, if you let your credit card balances climb, you might reach the point where you can’t make your monthly minimum payments on time. That can be a black mark on your payment history, which could send your credit score plummeting even more.
So what you really need to ask yourself before getting a credit limit increase is whether you trust yourself to use one to improve your credit score without taking advantage of the extra leeway to spend.
If not, then you’re better off not taking the easy way out here. Instead, you should stick to the tried-and-true methods of paying bills on time and paying off credit card debt to improve your credit score, even if it means having to wait longer to see that number go up.