|This is a great question and it was debated on many blogs. However, while I am not saying I am in possession of the absolute truth, I can give you a bit of insider information as I am a banker and I know credit inside out.
Building a strong credit score requires a lot of self discipline and a great control over your personal finance.The best way to improve your credit score is to show the financial institutions that you are able to use your available credit while making your payments on time and not overloading your credit card.
Use your credit card on a monthly basis
Credit is all about confidence. It is related to financial institutionsâ€™ confidence in your ability to pay them back. If you do not use your credit, how would they be able to know if you are able to pay back or not? The easiest way to improve your credit score is by using your credit cards every month. Credit cards companies always report to credit reporting agencies such as Equifax or Transunion. This monthly update will provide financial institutions with relevant information in regards to your payment abilities. Credit cards are also one of the easiest type of credit to get. A bit of income, a two pages application and you receive your new card in the mail along with a free T-Shirt!
Manage the balance on your credit cards
Another factor that influences your credit score is the balance used versus the amount of credit you have at your disposition. This is what we call the â€œbalance to available credit ratioâ€. You divide what you owe by your total credit limit (this include all revolving and non-revolving credit). If this ratio is high, your Beacon Score will be hurt. The key is to keep balance at a low level. The best way to improve your credit score is to pay the entire balance of your credit score on a monthly basis. Therefore, the credit reporting agency will give less importance in the credit card balance when they calculation your score. You are also better off with 1K owed on five different cards than one card with a limit of 5K that is maxed out.
Keep several accounts opened and active
This is where it gets tricky. Too many credit accounts will scare most bank and make your credit score drop because you have potentially access to too much credit. However, if you only have one of two credit cards, your balance to available credit ratio will suffer. The key is to keep about three to five credit cards and use them on a monthly basis. Credit cards are free of use and give reward point. Click here if you want more information on why you should use your credit cards. If you have substantial limit, such as over 10K, I would recommend only three cards. However, if you are starting to build your credit history, your credit card limit will be lower. Then, you should get about five cards. The key is to use them on a regular basis and paying the whole balance whenever you get your bill. Donâ€™t be late, if not it will eliminate any improvement on your credit score.
In the end, you will be able to improve your credit score by using three to five credit cards on a regular basis and pay the entire amount upon reception of your monthly statement. With that method, you will not only improve your credit score but you will also gain rewards points. The best part is that it will not cost anything as stores are paying for the credit cards usage, not you!
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