9 Credit Score Hacks You MUST Know!
There really isn’t much financial advice out there that would be considered a “big lift.” Think about it: how many times have you heard, “If you just save $0.50 per day downsizing your venti Starbucks coffee to a grande, you could have enough saved up by the time your 327 years old to buy a pair of shoes!” But today is going to be a little different because we’ll be discussing “credit score hacks”! (Sounds almost badass doesn’t it?)
The last post was designed to introduce you to the world of credit scores: what they’re for, when you’ll use them, and what defines a great/good/bad/gross credit score. Today is going to be a breakdown of the 9 most important things you can do to increase your credit score! None of these “credit score hacks” are illegal, or even shunned; you should be doing everything within your power to maximize your credit score. Tweet Remember, the higher your credit score, the lower your interest rate will be on loans, which means you’ll be paying less for access to capital. This can literally save you tens, even hundreds of thousands of dollars over your lifetime! With that in mind, let’s get started.
What Information Goes Into Your Credit Score?
Remember those kind folks over at the Fair Isaac Corporation (FICO)? Those guys who are responsible for calculating your credit score? Well, they’re kind enough to let us actually know what factors are used to come to that number. The following are the factors that you can control to change your credit score, in order of importance (i.e., how much it’ll affect your score).
- Credit Utilization
- Payment History
- Derogatory Marks
- Age of Credit History
- Total Accounts
- Credit Inquiries
This is the big one folks. The whale. The mammoth. The Chris Christie. If this were a President, it’d be George Washington. If this were religion, it’d be Jesus. If this were food, it’d be the fucking McRib. Your credit utilization is one of the most important factors in your credit score, and it’s calculated as follows:
Balance on ALL your credit cards / Limit on ALL your credit cards
So if you have a $500 balance across all your cards, and your total spending limit on those cards is $10,000 (you baller, you) then your credit utilization would be 5%. The lower your credit utilization number is, the higher your credit score will be. Why? Well, only the man behind the curtain really knows, but logically it makes sense that if you have a ton of credit, but you don’t spend it, that you’re more likely to pay back other loans. Sooooo, how do you keep your credit utilization low?
Credit Score Hack #1 – Pay Off Your Cards More Often. This is a simple one guys. You’re waking up on a Sunday morning. Your head is swimming with a hangover as you try to make sense of all the drinking, poor decisions, and regrets from last night. There’s a dude on your couch that you’re pretty sure delivered the pizza last night, someone wrote #feelthebern in sharpie all over your walls, and THAT’S when you realize, “Shit, I have to pay off my credit cards to keep my credit utilization down.”
But the more often you pay off your cards, the lower the balance will be. And if your balance is lower, your credit utilization is lower, which means your credit score is higher, which means you have access to cheaper loans, which means you can finally buy that cute little house on the corner of Main and Sycamore, turn it into a homemade cupcake store, start franchising your idea out, and TAKE OVER THE WORLD WITH YOUR INSUFFERABLY CUTE CUPCAKES!
Long story short: if you pay off your credit cards once a week, and turn it into a habit, you will find your score will increase.
Credit Score Hack #2 – Get more credit/increase your limit. This one isn’t for those of you who lack self control. Very simple math here guys: in order to make a fraction smaller, you either make the numerator smaller or the denominator larger. So, you can either decrease the balance (see above) or you can increase the amount your allowed to spend. So either apply for more credit, or try to get an increase on your current cards. I suggest the latter, as it doesn’t involve a pull on your credit (we’ll talk about this later) and is more likely to be approved since you already have a history with the company.
That being said, this is not your excuse to try to get $100,000 worth of credit and spend it like your Jordan Belfort. The point is to keep your credit score low, not to tempt you into spending that you wouldn’t otherwise do. So, if you can handle it, increase your credit limits. If you can’t handle, then DON’T EVEN TRY! It won’t be worth you overspending, I guarantee it.
Dr. Phil certainly wasn’t the first to say it, but he was the first one I heard say it, and with that southern drawl poking through that mustache I wasn’t about to forget it (go ahead, judge.) He said, “The best predictor of future behavior is past behavior”. And while I don’t think he gets credit for the idea, I think the idea is correct. People are more likely to do something if they’ve already done it; that’s the whole concept behind self-efficacy.
And that’s why the credit reporting agencies place such a huge emphasis on your payment history. They think (and rightfully so) that if you’re someone who’s paid on time in the past that you’re going to be someone who’s going to continue to pay on time. Your payment history is a percentage and is calculated as follows:
Total number of on time payments / Total number of payments
Credit Score Hack #3 – Pay on time! Ok, so I don’t know if this counts as a “hack” so much as common sense, but if you’re paying your cards off on time, your credit score will increase substantially. When added to credit score hacks #1 and #2 above (considering you should be paying off your credit cards weekly) then you’ll never ever have a late payment (like yours truly). If you’re not paying weekly, be sure to set a reminder on your phone or computer, and make sure you make time to make these payments. These days, it’s as easy as opening an app, so you really have no excuse not to pay on time, every time!
No, this does involve you saying something racist or faux-pas. A derogatory mark is when you haven’t paid back money that you borrowed. This could come in the form of a bankruptcy, tax lien, foreclosure or any sort of collection attempt (be it for credit cards, your car, etc.). These you obviously want to avoid as much as possible (consult with an attorney if you seriously have questions about bankruptcy proceedings). So…
Credit Score Hack #4 – Know that they will find you. Guys, please don’t think for a second that these companies are just going to let you get away with spending money on their card, or not making your car payments, or avoiding your mortgage payment. Banks have entire divisions dedicated to make sure that people don’t get away with that shit, and they do it for 2 good reasons. One, they would lose a shit ton of $$$. Two, if they let one person get away with turning a loan into “free” money, then everyone would think they could get away with it.
Age of Credit History
Credit scores are like fine wine, cheese, and investments; they only get better with age. Your age of credit history is not going to affect you too terribly, as you don’t have a ton of control over this. The age of credit history is calculated by taking the average age of all your credit accounts. So, if you’ve had a credit card for three years, another for four years, and yet another for one year and three months, then your age of credit history would be 2.75 years. How do you improve this? Well…
Credit Score Hack #5 – Getting a credit card ASAP. As soon as you turn 18, get out there and get a (good) credit card. Get your history started as soon as possible, as it will only help you in the long run. If you can’t get a credit card (which most of us wouldn’t have been able to at such a tender age) then ask your parents/guardian to cosign for you.
Credit Score Hack #6 – Get added as an authorized user. This one comes with a little bit more dangerous territory. On the one hand, doing this can add years of credit history to your report in a very short amount of time. On the other, if the person who added you is not responsible with their credit card, then their undesirable actions (missing a payment, closing the account) become your undesirable actions, and it will reflect on your credit report even if you weren’t responsible. So take this one with a grain of salt. If your parents made you eat your veggies, get to bed on time, and took you to the science museum, you’re probably ok being added as an authorized user. If your only role model in life is a tatooed badass named “Hammer”, then being an authorized user is probably not worth it.
The total accounts part of your credit report really has a low impact on your score. For the most part, if you can optimize the total accounts, then you should, but it’s not something you should stay up all night thinking about. If you’re really dying to get your score up this way, here’s what you can do.
Credit Score Hack #7 – Use debt. Now, I know that there are several financial advisors out there that claim that debt is the root of all evil when it comes to financial woes. I’d argue that people’s behavior is really the root, and here’s why: debt does not exist to help you buy a $4,000 TV. No one needs a $4,000 TV. People do need places to live and ways to get around. So if you’re one of these cash happy people that can pay for everything with cash, that’s awesome! But I still suggest you use debt. An example would be if you were to buy a car for $10,000 through a dealership, and you had that amount in your account ready for this exact purchase. You could just pay in cash, or you could get a super cheap car loan through a credit union, pay off most of the loan with the cash, and build up not only your total accounts (to which you’ve now added one) but also the average age of your accounts (depending on how long you keep the loan).
Again, is this going to make or break your score? Nope. Will this in conjunction with some other credit score hacks help push you from good to excellent credit? It absolutely could!
Finally, credit inquiries. A credit inquiry is when an organization sends a request to either FICO, TransUnion, or Equifax to get your credit report so they can know all about how likely you are to pay them whatever it is you need to pay them. The most common occurrence of credit inquiries in your young adult life is more than likely going to be for apartments, when landlords or property managers will be pulling your credit to see if you’re going to be a good little tenant and make your payments on time. Very simply put, the fewer inquiries, the better. How do you keep that number down?
Credit Score Hack #8 – Keep inquiries down. Obviously, if you’re applying for apartments, there’s not much you can do here. But whenever you’re talking to a loan officer or a credit card rep, always check to make sure that they’re not going to pull your credit. The only thing worse than having your credit pulled is having it pulled and you not know about it.
Credit Score Hack #9 – Plan your inquiries. Your credit score is going to be pulled whenever you apply for a loan, for a credit card, or an apartment. Because you know when your credit is going to be pulled, you should be able to plan these out in advance. For example, maybe you know you want to buy a house in two years. So, you know that you have one year to apply for any credit cards you think you want, but after that maybe you stop applying to limit the hard inquiries to your account. And maybe because you know you’re moving in two years, you make sure you stay at the same apartment, and decide to drive your clunker around for a little while longer so you have a great credit score when applying for mortgages.
Credit Score Hacks – The Wrap Up
So there you have it! Nine credit score hacks that you can implement today to make sure that you’re optimizing your credit score! Remember, having a high credit score is one of the most efficient and worthwhile cost-reducing measures you can use. Here’s what you can do to to keep that credit score up:
- Pay off your cards more often
- Get more credit/increase your limit
- Pay on time
- Know that they will find you
- Get a credit card ASAP
- Get added as an authorized user
- Use debt
- Keep inquiries down
- Plan your inquiries
Did you find this helpful? What other topics in personal finance would you like to know more about? Comment below and I’ll start articles on whatever you want to know!
Keep trying to crack the code,