Having a huge credit card bill hanging over you can be disastrous. Instead of letting things grow, it’s always best to act hard to pay your credit card. In addition to simply having more money, paying for your credit card can have other positive effects. Included in these is the fact that this will undoubtedly help increase your credit score. Although this does not happen overnight, it could potentially happen faster than you think.
Why does paying your credit card bill help increase your credit score?
Well, it’s because the more you fail or make late payments, the lower your credit score. Another reason is due to a small thing called your credit usage rate. This basically concerns the amount of your available credit that you use. So, if you have a credit card at most, you have absolutely no credit available, which is a bad sign. However, you do not want to have 100% of your credit available, this shows that you are not using the credit you have. Instead, try to use about 30% (or less) of your available credit and pay it back every month. This will allow lenders to know that you can use credit responsibly without becoming too insane. However, your credit score takes into account more than just your credit card payments. In order to help you understand and obtain your credit score, we will look at other factors that will determine your credit score. Before considering these factors, however, it is important to know what a credit score and some other basics are.
What is a credit score?
A credit score is essentially a summary of all the different information contained in your credit report. Your credit report is essentially a continuous record of how you have managed your credit over time. Instead of providing you with a ton of different information and data, all this information is calculated and combined into one easy-to-understand number. Lenders use your credit score to make a quick and unbiased decision about whether or not to grant credit. Scores can range from 300 to 900, but the average score is around 700 for most Canadians.
How to increase your credit score?
Do not ask for too much new credit
If too many lenders look at your credit rating or check it in a short period of time, it will probably have a negative effect. However, be aware that asking for information about your own credit rating will have no impact.
Use your credit card responsibly
If you do not use your credit card or other credit accounts, you will not develop your credit card. So, do not be afraid to use your card, but make sure you use it responsibly. It means not spending more than your limit and always paying for it. Over time, as long as you use your card responsibly, you can slowly but surely increase your credit card.
Keep your balance low
Although you must use your card, it is best not to abuse it. You should not use more than 30 to 35% of your available credit each month to show that you are actually using it, but do not be reckless. Before any significant demand for credit such as a car loan or mortgage, it may be wise to keep this rate of use even lower to get a score as good as possible.
Increase your credit limits (if you can manage it)
However, if you have a low limit, low usage can be difficult. In this case, it may be wise to increase your credit limit. This will give you more access to funds and more flexibility each month. Of course, only increase your limit if you can cope with it and do not go crazy with extra expenses.
If your problem is to remember to pay your bills (or at least not pay them on time), it may be wise to consider setting up automatic payments. So, you will never miss a payment again and the good news is that most credit accounts allow you to set up automatic recurring payments.
Pay bills when due (preferably in full)
You should have a similar day each month when your credit bill is sent and when it is due. Therefore, you must choose a day of the month a few days after the billing (but before the due date) and pay it in full. By respecting a schedule, you will not forget and will accidentally miss a payment. Of course, paying the minimum is better than nothing, but you should always try to repay your credit in full each month so you do not have to pay the balance.
If you are diligent about the above points and make sure you know all the factors that come into play in determining your credit score, you’ll be well on your way to getting a higher score in no time.