The FICO credit scoring model is by far the most widely used in the United States, and while the exact formula is a well-guarded secret, we know the basic categories and their respective weights. This gives us enough to figure out some strategies that can increase your credit score. Here are four that you could put to work in 2024.
1. Your loans will be paid down
There’s no magic formula when it comes to the most powerful ways of building your credit score. The best path to a higher FICO® Score is a combination of paying your bills on time and reducing the amounts you owe. These two categories account for 35% and 30%, respectively, of the FICO scoring formula.
In other words, if you have existing loans, such as a mortgage, auto loan, or personal loan, the simple act of paying them on time every month throughout 2024 could raise your credit score all by itself. The same idea applies if you have credit card debt and gradually pay it off in 2024.
2. You’re going to consolidate your credit card debt
You don’t necessarily need to pay a big chunk of your credit card debt off in 2024 to boost your credit score. The simple act of consolidating it could have a big impact.
Let’s say you use a personal loan to consolidate existing debts. First, installment loans are generally considered more favorably by the FICO scoring formula. Plus, all your credit cards will have a zero balance after you consolidate, and a low usage percentage on revolving credit accounts can certainly boost your score.
On the other hand, let’s say you open another credit card with a 0% intro APR balance transfer offer, which is the other major method of credit card consolidation. Just like with a personal loan, your existing accounts will all have a $0 balance, and your overall revolving credit utilization will be lower than before.
3. You aren’t applying for any new credit
Two other categories of the FICO scoring formula I haven’t mentioned yet are new credit, and the length of your credit history, which account for a combined 25% of your FICO® Score.
Applying for and opening new credit accounts can hurt your score in both of these categories. The “length of credit history” category considers time-related factors, such as the ages of your individual accounts and the average ages of all of your accounts. Clearly, opening new accounts will make some metrics move in the wrong direction.
The new credit category considers newly opened accounts, but also considers credit inquiries — that is the times you’ve applied for credit, regardless of whether you opened a new account. Credit inquiries from the past 12 months are considered and can have a negative impact on your score.
If you don’t apply for any new credit in 2024 and don’t open any new accounts, it could be a positive catalyst for your score.
4. You get higher credit limits
This is more of an outside-the-box way to boost your credit score. The “amounts you owe” category — among other things — considers your revolving credit utilization, and using a lower percentage of your available credit is generally better.
The obvious way to improve this metric is to pay off some of your credit card debt. But there’s another way — asking for higher credit limits on your existing credit cards.
Think of it this way. If you owe $1,000 on a credit card with a $4,000 limit, you’re using 25% of your available credit. If your credit card limit is increased to $5,000, you’re only using 20%, even though you still have the same balance. Many credit card issuers will increase your limit without a credit inquiry, and the worst they can do is say no.
How will you take your credit score to the next level?
This isn’t an exhaustive list of the ways you could boost your credit score, and obviously, not all of these will apply to everyone. For example, if you’re planning to buy a home in 2024, you can’t adhere to the “don’t apply for any new credit” part.
However, the key takeaway is that while the FICO scoring system is rather complex, there are many different ways you could potentially boost your score if you know how it works. Which of these strategies could you implement in 2024 to increase your credit score?
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