What’s a Credit Score?
- A number between 300 and 850 that measures your credit worthiness. The higher the better.
- Average credit scores fall between 620 and 720. Good credit scores are above 720.
- Credit scores are determined by the companies FICO, Experian, TransUnion, and Equifax.
Why Should I Care?
- If you ever plan on borrowing money, a high credit score lets you borrow more at a lower rate. Example: A good credit score can save you a few hundred dollars a month on a mortgage payment.
- If you ever plan on renting, landlords may use your credit score to check if you make payments or not. Example: Landlords may expect renters to have a score above 700.
- Save a few hundred dollars a year by qualifying for a good credit card. Example: The Citi Double Cash card nets you 2% cash back.
- Rack up airline miles by qualifying for great rewards cards. Example: The Chase Sapphire Preferred card is considered the best credit card.
- There is no quick way to increase your credit score. You need to start now!
What’s My Credit Score?
- Several websites such as CreditKarma or Mint provide your credit score for free.
- If you have a credit card, your company might provide your score for free. CapitalOne & Discover do it.
How Do I Increase My Credit Score and Get Better Credit Cards?
Remember! There’s no quick way to increase your credit score. You must start now. Here’s the outline. The following table has specifics. And the next section has details if you want ’em.
- You start with a basic credit card.
- As time passes, the credit card establishes a credit history for you. Your score improves.
- After a year, you apply for a better card with your improved score.
- Again, as time passes, the second card adds to your credit history. Your score improves.
- After another year, get a third card. You’ll qualify for a good card with your even better score.
- Repeat this cycle as below.
No credit cards or bad history
|Apply for a Capital One Journey card. If you don’t qualify, get a CapitalOne Secured Mastercard. After 6 months, apply for a credit limit increase. After 12 months, apply for another credit limit increase.
1-2 credit cards
|Apply for a CapitalOne QuicksilverOne card or similar. Again, after 6 and 12 months, apply for a credit limit increase. After a year, upgrade to the QuickSilver card.
2-3 credit cards
|Apply for Chase Freedom with $150 signup bonus. Again, after 6 and 12 months, apply for credit limit increase.
3-4 credit cards
|Apply for a Chase Sapphire Preferred Card. Annual free $95; waived first year; signup bonus 40,000 pts. Alternatively, if you prefer cash back, get the Citi Double Cash credit card with 2% cash back.|
What Affects My Credit Score? Why the Strategy Above?
My strategy focuses on simple steps, relying on these factors to improve your credit score:
Factors You Control
- Pay on time in full: Always pay your bill on time, in full. Avoid carrying a balance if possible.
- Get more credit cards: See next section. The more cards, the more trustworthy you look. A good number is 3 or more cards. Never close a card, even if you never use it.
- Use <30% of your credit limit: For example, if your limit is $1000, don’t cross $300. Using >30% makes you look risky.
- Increase your credit limit: The higher your limit, the less % you use of it. Typically, you can request increases every 6 months. Increase your limit as much as your company will allow you.
Factors You Don’t Control
- Average Age of Accounts: The older your credit cards/loans, the more ‘established’ you are. Only way to increase this is to wait.
- Age of Oldest Account: Again, the longer your credit history, the more ‘established’ you are. Only way to increase this is to wait.
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