March 26, 2014— -- If you want to use credit or get a loan someday, you should work on raising your credit score. It can take a while to earn a good credit standing, and for the most part, that's how the game is played: with patience and good behavior.
But there are a few tricks to make it easier or faster to increase your credit score.
First a few things on credit scores: They're important, and you should aim to have a good one, but you shouldn't obsess over the numbers. Fluctuations are normal, but keeping tabs on your score will help you make good financial decisions. Watching your score could even help you spot identity theft, because an unexpected score drop could indicate someone is misusing your information.
Keeping track of your score is easy, but make sure you're comparing the same score from month to month. There are free services like Credit.com that provide monthly access to your scores and help in creating a credit game plan you can execute.
Once you know what your score is, you can make a plan to improve it.
1. Use the Buddy System
If you have no credit or can't get a credit card on your own, explore the option of becoming an authorized user on a credit card. What you do is ask a primary cardholder, like a family member or significant other, if you can get an authorized card in your name on their account. Keep in mind that some scoring systems may give less weight to authorized user accounts than they do to primary accounts, but you would still stand to benefit from them.
While this can be a great way to add payment history to your credit file, it can be a delicate, high-stakes strategy. First, the primary cardholder must be willing to add you to his or her account, and even though this person can be anyone, you should only tie your credit to someone you deeply trust.
This is especially important for the primary cardholder. If you add an authorized user to your credit card account, and that user runs up a huge bill, you're held accountable for it, and your credit score will be affected by the high debt levels or missed payments.
Adding your child as an authorized user on your account can help them build credit from a young age. In fact, the authorized user gets credit for the whole account history, not just the point from which they're added to it. Not only does that establish a credit history, it increases the average age of accounts on your credit report, which is also an important factor in credit scoring.
Primary cardholders should keep in mind that their actions will affect that user. You don't want to trash your kid's credit by adding them as an authorized user to an account that's maxed out or delinquent.
2. Pay Often
To get a great credit score, you should use as little of your available credit as possible — many experts recommend keeping your credit utilization lower than 30%, and 10% is even better.
That's a huge bummer if your only credit card has something like a $500 limit. Even if you can afford to use more than 30% (or all) of your available credit, you shouldn't, in order to protect your credit score.
If you want to use your credit card a lot but don't want to hurt your credit utilization rate, consider making multiple account payments each billing cycle. You won't know when the credit card company will report your balance to the credit reporting agencies, so paying quickly and often will keep your reported balance very low.
You don't have to pay after every day of transactions (though some people do), but no matter how you approach this strategy, make sure you stay organized so you don't miss the actual due date. Your payment history is the biggest factor of your credit scores.
3. Strategically Open Accounts
Applying for credit should be done sparingly, because applications result in a hard inquiry on your credit report. Recent hard inquiries will dock your score a few points, so the more there are, the more points you lose.
If you have low credit limits and reducing your spending isn't necessary, you could open a new credit card account or two to increase your available credit. The trick is making sure you don't increase your spending beyond what you can afford.
"The long-term benefit to your utilization can far outweigh any short-term loss of points," said Barry Paperno, a four-decade veteran of the credit industry. Paperno cautioned that you should only do this if you don't anticipate needing to apply for a car, home or personal loan in the next six to 12 months. Otherwise, those extra inquiries could hurt you.
4. Reporting a Card Lost
This is an obscure one, but Paperno said it came up a lot when he worked with myFICO Forums, a community for conversations about credit.
"You report your card lost," he said. "They close that account, create a new account number for you and move all your history over to that account, including the original open date, and add that new account to your credit report."
If that account has been open for a long time, you now have two trade lines with that length of history, which increases the average age of your credit. Credit age makes up roughly 15% of your credit score.
"I'm not encouraging this, by the way," Paperno said. At one point, he called the practice "borderline unethical," but people do it, and it works. "I think it's more trouble than it's worth. ... But it does point out that you can help your score by more than paying down balances and making your payments on time."
Also, different credit card issuers may report a lost or stolen card differently to the credit bureaus, so this hack may not have the desired effect.