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9 Ways to Keep Your Credit Score as High as Possible
July 17, 2020 | Posted by: Lam Lee
How are you supposed to optimize your credit score when you don’t even know what it is? The answer is by focusing more on your overall “credit hygiene” rather than on any one particular score.
Dental hygiene is preventative maintenance to ensure your teeth and gums are the best they can be at all times. Having a similar routine for your personal credit history can be equally important to avoid problems when you least need them—like when buying or refinancing a home.
If you are always employing best practices, then you are optimizing your credit score and your overall credit profile, regardless of who is checking, when they are checking and what is being counted and reported.
Unfortunately, more credit in the wrong hands can lead to abuse. Some people rely on credit to supplement their income and end up in an untenable situation. These credit hygiene tips are intended for people who are responsible with credit.
Never Go Over Limits – Leave Some Room
When you have a credit card or line of credit hovering around its limit, you are at risk of going over, which is not a good thing for your credit score. And it might happen innocently—you started out under the limit, but with interest charges and possible over-limit penalties, you are now in the Badlands.
Even when you deploy a balance transfer promotion or some form of interest-free period, you should leave room at the top.
It’s like when ordering a coffee, leave room at the top for the milk—even if you take it black, avoid spillages.
Accept All Offers of Increased Limits
You should usually welcome credit limit increases. You look healthier and stronger to the casual reader, because your limits have some heft to them. And perforce, you instantly reduce your percentage utilization of credit with an increased limit. This often results in a higher credit score.
Equifax Canada states percentage utilization has a 30% weighting on your personal credit score.
Spread Around Your Balances
When maximizing your personal credit score, you should look at your utilization of available credit for each individual credit facility. If your goal is to maximize your score at all times, but you do carry credit balances, try to spread it around, rather than cluster it all on one card. One way this can arise is when you use balance transfer promotions to reduce interest expenses. You’ll have to evaluate the trade-offs of each approach.
Exercise All Cards and Lines of Credit
We tend to favour one particular credit card (maybe we like their rewards program) and we might neglect our other cards. If you are trying to maximize your credit score, it is good to use all available credit fairly regularly, even if it’s just for a brief moment every few months.
These trade lines can get stale and they are not pulling their full weight. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately.
Coincidentally, only yesterday I received a message from my bank telling me my personal line of credit was now dormant and no longer accessible. I had not used it in eighteen months—not following my own guideline!
If in Doubt, Do NOT Close a Credit Card
It will rarely be correct to close older, unused credit facilities since they are contributing “score juice.” If you want to close the card to avoid an annual fee, just ask the card issuer to downgrade your card to a free card. You will retain your valuable history, but avoid annual fees (and the spectre of forgetting to pay the fee).
Equifax Canada states your history can have a 15% weighting on your personal credit score.
Use It or Lose It
If you never borrow money, or you have a solitary credit card in your wallet and you never actually use it, eventually you will have nothing generating a credit score for you. And you may end up with no score at all. And that can really cramp your style when you need a mortgage.
Pay Your Active Credit Cards At Least Twice Monthly – The Statement Date Strategy
I keep track of the statement cycle of my oft-used cards, and I pay the balance in full several days BEFORE the next statement is issued. The card issuer typically reports my statement date balance to the credit bureaus – so I always want that balance to be small, and that way my utilization ratios are really good.
And within a week or so of the statement being issued, I go back in and pay the statement balance in full. This ensures I never have interest charges on my core credit card usage, since the balance is always brought to zero before the due date.
The smaller the limits on your credit cards, the more dramatic the impact of the statement date strategy.