Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes “Speaking of Credit,” a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
Dear Speaking of Credit,
I currently have two credit cards ($5,000 credit limit on each). I’m looking to boost my credit score above the 750 mark, and I’m just a few points shy. I maintain less than a $100 balance combined across the two cards, and I know a low available credit/credit used ratio can help boost your credit score.
Should I apply for a third credit card or ask for a credit limit increase from one of my existing cards? If I ask for a credit increase, how much should I ask for? I am gainfully employed and make over $50,000 a year. I have $18,000 of student loans, but I’ve paid $5,000 off in the past four months. – Bronn
You’ve provided us with a great reminder of how the best strategies for raising credit scores are often the easiest to implement. Particularly in a situation like yours, in which you’re already doing right by your score and have a good one to show for it.
Before revealing this simple way to scoring success, let’s take a look at some possible impacts – some positive, some negative – from following your thoughts of applying for a third card or a credit limit increase.
Opening a new card
It’s common knowledge that a new account can hurt your score initially, but then do some good once the new account has aged some. But how exactly? To counter the benefit of an additional credit limit added to your credit utilization (total balance/total credit limit) calculations, there are at least a couple of scoring categories that can be adversely affected when any new credit account appears on your credit report:
- Length of credit history (15 percent of your score). In this category, where older is always better, a couple of scoring factors – recency of the newest account opening and average account age – are likely to be weakened by adding an account without a history.
- New accounts (10 percent of your score). Expect a score drop of about five points on average from the hard inquiry initiated by a credit application or acceptance of a card offer. Then, once opened, a new card can also cause a point loss from some other scoring factors, thanks to the increased risk associated with any recently opened credit account.
Video: FICO’s 5 credit score factors
Credit limit increase
While much less likely to hurt your score than applying for a new card or accepting a credit offer, a credit limit increase also can require a hard inquiry that can take some points off your score for the next 12 months.
When requesting a limit increase, one of the first questions a consumer should ask the card company representative is whether they will be pulling a hard or soft inquiry (non-score-impacting inquiry), or both.
If the issuer says it will pull a hard inquiry, you can choose to proceed or not. Keep in mind that if you go ahead with the request for a credit limit increase, you won’t know if it will be approved or if it was a good score-raising move until after the card issuer’s decision has been made and the damage, if any, has been done.
Still, with or without a hard inquiry, a credit limit increase can help your credit score if doing so substantially lowers the credit utilization percentages. However, since credit utilization doesn’t appear to be a problem with your score, don’t expect much bang for your buck from this tactic, even if approved.
Foolproof solution (patience required)
Fortunately, while a new credit card or a credit limit increase may or may not achieve your goal on its own, there is an easy way to get the job done that’s probably just as quick and requires much less effort on your part.
That is, do nothing other than what you’ve been doing all along – pay on time and keep your card utilization low – without applying for any new credit. Avoiding new accounts allows the passage of time to add points to your score slowly but surely by:
- Increasing the length of time of your most recently opened account, and
- Raising your average account age.
If it seems surprising to have such a lazy solution as your best bet to crack the 750 mark, consider your lack of score-improving options as a good problem to have. Good in that you have already achieved a high score that reflects your diligence in paying on time and controlling your card debt.
Now, if you can just continue managing your credit in this manner while patiently letting time and the absence of new accounts add points to your score, you could be seeing your score hit the upper 700s in a matter of months. Then from there, it’s on to 800 and beyond!
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