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How to Improve Your Credit Score Before You Apply for a New Credit Card

Oct. 25, 2013
Credit Score
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Credit score not quite where it should be? A low credit score can make it hard to get approved for a new credit card–especially if you’re hoping for something with reasonable rates and a solid rewards program. And you can’t build a credit score overnight, unfortunately. But there are some immediate steps you can take to send your credit in the right direction. We’ll show you a handful of quick ways to boost your score, along with a few long-term strategies to move forward.

Quick fixes

1. Decrease your credit utilization ratio

One of the most effective ways to strengthen your credit score is to decrease your credit utilization ratio. Simply enough, that means paying down debts. Experts suggest staying 30% under your overall credit limit–though some recommend keeping it lower than 10%. If possible, pay off your existing credit cards before applying for a new one. Creditors want to see you use your cards responsibly and aren’t applying for a new card in a desperate attempt to quickly boost your spending power.

2. Don’t close your other accounts

A common mistake is closing accounts when getting a new credit card. A large part of your credit history depends on the age of your accounts. You can increase the average age of your accounts by keeping old ones open. Obviously, this can be a problem if your cards carry an annual fee. You don’t want to be paying upward of $95 a year for cards you don’t actually use. If you’re looking to swap one card for another, wait until you’re approved for your new card before you close any old ones.

3. Only apply for one card at a time 

When getting a new credit card, submit only one application at a time. Wait for a response from the credit card company before you try again. There are two reasons for this. Each time there is an inquiry into your credit, your credit score takes a small hit. While one inquiry won’t drop your score much, several inquiries can make a big difference. Creditors also are suspicious of anyone who seems to be trying to open a large number of accounts at the same time.

4. Aim for realistic credit cards

To limit your credit card applications, don’t waste time applying for cards for which you can’t realistically qualify. A person with low credit has no business applying for an American Express Gold Card, for example. Again, limiting your applications will mean fewer hits to your credit score. To best pinpoint which card is right for you, find out what your credit score is and vet your options accordingly.

Long-term strategies

Building credit doesn’t happen overnight. It takes a gradual cycle of borrowing and repaying. Here are a few more tips for establishing good credit over the coming years:

1. Make payments on time

The No. 1 rule of building credit is always make payments on time. Your credit score signals how much creditors can trust you to repay what you borrow. They want to see that you spend responsibly. Whether you’re paying credit card debt, student loans, a car loan or a mortgage, never miss a payment.

2. Pay through installment loans

One of the most effective ways to show your creditworthiness is to pay through installment loans. If you’re looking to buy a car, consider taking out a loan instead of buying it outright. Student loans can serve the same purpose. For people with low or bad credit, credit unions and local community banks often offer credit builder loans. With a credit builder loan, the borrower makes payments over a period of time and the money is put in an interest-bearing account. Once the loan is paid in full, the borrower gets access to the money. It works in reverse of a typical loan, because the borrower doesn’t get access till he’s proved he’s credit worthy.

3. Check credit reports regularly

One of the simplest steps you can take to protect your credit score is to review your credit report. Immediately report any errors that may hurt your credit. One in five Americans has an error on their credit report, according to the Federal Trade Commission. Don’t suffer because of someone else’s mistake. Check your report carefully. You’re entitled to one free report a year.