[UNITED STATES] A high credit score might be beneficial, but boosting it is not always simple. According to a recent NerdWallet poll, nearly four out of every five Americans are seeking to improve their credit score. However, 50% believe they confront impediments to progress, including a limited credit limit. The website questioned over 2,000 persons in the United States in September.
The importance of credit scores in today's financial landscape cannot be overstated. As Rod Griffin, senior director of consumer education and advocacy at Experian, points out, "Your credit score is essentially your financial reputation. It's a snapshot of your creditworthiness at a given point in time." This three-digit number can significantly influence various aspects of one's financial life, from loan approvals to interest rates, making the pursuit of a higher score a common goal for many Americans.
According to experts, improving your credit score might provide you more access to new options, such as the ability to rent an apartment, purchase a property, or acquire utilities. (In some cases, those entities may consider your credit record rather than your score.)
"As long as you hit that good-to-excellent range, doors will open," said Sara Rathner, NerdWallet's credit card analyst.
Utilization has a significant impact on your credit
According to NerdWallet's survey, 15% of cardholders wanting to raise their credit score think that having a low credit limit is an obstacle.
Credit usage, or the proportion of total available credit used in any given month, is one of the elements considered when establishing your credit score, according to Rathner. With a limited credit limit, even little transactions might result in significant use.
"Credit utilization can definitely affect your credit in a big way," said Ted Rossman, credit card specialist and senior industry analyst for Bankrate. For example, if you have a $1,000 credit limit and spend $500 per month on it, your credit usage rate is 50%.
A general rule of thumb is to keep credit usage at 30% or lower, but this might be difficult to do when you have a low credit limit, according to Rathner. If you have a $1,000 credit limit, $300 won't go far, she explained: "That's a few grocery bills right there."
While managing credit utilization is crucial, it's not the only factor affecting credit scores. Payment history, which accounts for about 35% of a FICO score, plays an even more significant role. "Consistently making on-time payments is the single most important thing you can do to improve and maintain a good credit score," explains Griffin. This underscores the importance of setting up automatic payments or reminders to ensure bills are paid on time, every time.
There are options for you to improve your credit line: First, ask your credit card provider if you're qualified for a boost. Rathner stated.If your income has improved, update your account with your current pay; this may "make you eligible for a credit limit increase," she noted.
Some experts also advocate settling your debt before the statement closure date, which is when the lender sends your balance to the credit agencies.
"Make an extra mid-month payment; knock that statement balance down before it even comes out," Rossman told me. "That will help your utilization ratio, but it also helps if you're carrying debt."
Applying for a new card might improve your total available credit; while it may somewhat reduce your score, the decline is just temporary. However, "it's easier said than done to get a new credit card or a higher limit," Rossman stated.
The challenge of improving credit scores is further complicated by the fact that credit information isn't always easily accessible or understandable to consumers. As Griffin points out, "Many people don't realize they can get free credit reports from each of the three major credit bureaus once a year through AnnualCreditReport.com. Regularly reviewing these reports can help identify areas for improvement and catch any errors that might be negatively impacting your score." This emphasizes the importance of financial literacy and proactive credit management in the journey towards better credit health.
Many people are concerned that they will get a lower score the next year. Average credit ratings are reaching new highs. According to a survey from FICO, the provider of one of the most frequently used credit scores, the national average credit score has risen two points from a year ago to 718.
Despite these victories, 58% of Americans are concerned that they may harm their credit score in the coming year, according to a NerdWallet poll.
"Makes me wonder what are people planning on doing with their credit," Rathner asserted, "or is it because ... they've been hurt in the past and that fear is being carried forward."
People are falling behind on credit card payments and subprime vehicle loans as interest rates and inflation rise, according to Rossman. According to the NerdWallet study, 14% of respondents believe that being unable to make debt payments is a barrier to repairing their credit, while 13% say that being unable to make credit card or loan payments on time is an impediment.
"When people say they're afraid their score is going to go down, it's probably because they're worried about their finances, they feel like they're going to pay late, or they have more debt than they are comfortable with," he told me.
According to NerdWallet, over 28% of respondents are concerned that taking on too much debt may harm their credit score, while 24% are concerned about missing a credit card payment.
The anxiety surrounding credit scores reflects a broader concern about financial stability in an uncertain economic climate. "It's important to remember that credit scores are not static," says Griffin. "They can fluctuate based on your financial behaviors and external economic factors. The key is to focus on the factors you can control, like making timely payments and managing your debt levels responsibly." This perspective can help individuals approach credit improvement with a more balanced and less stressful mindset.
While there are misconceptions about how credit scores are produced and discrepancies across several ratings, it's useful to realize that cardholders have some agency. Rathner stated.
"It's very tempting to turn your credit score into some sort of score for how you are doing as a person, as an adult," Rathner told me. "If you're struggling with a low credit score, it's not because you're a bad person, it's because your situation has been tough."
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