Monday, November 18, 2013

Improve Your Credit Score by Increasing Your Credit Limit

Good morning, friends! Coming off of Wednesday's guest post on negotiating lower rent, I wanted to follow up with a way to increase your credit score. Don't know your credit score? A great place to start is Credit Karma. It's absolutely free and you can monitor the progress of your credit score over time.

As last week's post said, 30% of your credit score comes from your credit utilization rate, or how much you owe divided by how much credit is available to you. If your credit card has a balance of $1,000 and a credit limit of $5,000, then your credit utilization rate is 20%. Financial experts recommend keeping your credit utilization rate below 30% for your credit cards individually and collectively.

If you're currently carrying credit card debt, one obvious way to increase your credit score is to pay down your balances and get out of debt. If you need some inspiration, J. Money shared four success stories and links to how they kicked debt to the curb.

But if (and only if) you're responsible with your credit by keeping your credit utilization rate below 30% and pay off your credit cards each month; then it's time to focus on the other side of the ratio by increasing the credit available to you.

A few weeks ago, I received an email from my bank saying that I was eligible for a credit line increase. I provided them with some information and received confirmation of my increase a few days later.

However, you don't have to wait for your bank to contact you. You can call up customer service or fill out an online application to request a credit limit increase. I would recommend calling and using Ramit's script. That way, you can talk with a live person, which tends to speed up the process. Plus, you ask whether they will be checking your credit report as a hard or soft inquiry.

A hard inquiry will show up on your credit report and slightly lower your credit score until the inquiry rolls off after two years. A soft inquiry has no affect on your credit score. It's OK to have a few hard inquiries on your credit report (we have them from refinancing and buying our car), but keep them at 1 to 2 per year.
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