Months of ignoring my student loan bills had taken its toll on my credit report. The cold bucket of credit reality had been poured over me, and I spent the better part of a year trying to straighten up my score.
My business, though, couldn’t have been doing better, and I wanted to celebrate by investing in something for myself that I had needed for quite some time — a car. Shiny new wheels would be the perfect way to celebrate the fact that I had gotten my credit score up to 630.
My credit file was as close to perfect as you could ask for at a car dealership. I was putting a hefty chunk down on one of their premium sports cars (I couldn’t help myself!). It was plenty marked up, but I had a low DTI (debt-to-income ratio), and my income had been steadily increasing since the inception of my business.
From the 400s to the 600s
So I had four tradelines — my credit card, my car loan, and my two student loans. All had fairly solid (though short) payment histories attached to them. I also still had a collections account (listed as paid) included on my report. Nevertheless, my score was moving on up into the mid 600s. Given that just two years prior I was in the 400s, you can see why I was happy with my progress.
At this point, I wanted to really start pushing my score up as high as I could (I was becoming somewhat credit-score obsessed!). I started to read about the various methods one could use in order to really boost their score, like utilization and diversification.
Utilization (often called your debt-to-credit ratio) was an easy one for me. I didn’t (and still don’t, actually) have that much of a limit on my card, so it’s not like I was using it all that often anyway. Just enough so that it continued to be considered an active card in the eyes of the credit reporting agencies. Therefore, I had a really low debt-to-credit ratio.
Later on when my credit card limits increased, utilization became more of an issue. I started to see how a low card utilization helped my score when I went from using 90% of my available limit to 30%. What I’m doing right now with my cards is keeping one at a 5-10% utilization, while the others stay cleared. I just cycle through the cards in this way so that they all stay active — it seems to have helped me get my current score of 670.
Diversification, another credit score factor, was a bit of a problem for me. Basically, it means having different types of tradelines on your credit report. It’s said that having a good mix of various types of credit helps boost your score.
I did have revolving and installment debt represented by my credit card and my car and student loans. But I wanted retail credit represented on my credit profile, too. Unfortunately, I had a bit of an issue when it came to trying to get a store card. I mean, I even got denied for Walmart credit. Seriously, Walmart? I was convinced at this point that the credit world just hated me, but I finally managed to grab a Target card.
The exact right mix of account types remains a bit of a mystery. Honestly, I didn’t really see my credit score go up that much after obtaining what I thought to be a good blend of revolving and installment loans. For this reason, I don’t think diversification is something you should worry about when trying to raise your credit score. Rather, focus on making your payments on time, keep your utilization rate low, and don’t go crazy applying for a lot of new credit cards or loans at once (too many applications in a short time period can hurt your score).
Now the only other type of credit I didn’t have on my report was a mortgage, but that’s a story for another day.
This guest post was contributed by Tiffany Garden. Tiffany is a freelance writer who has a love / hate relationship with credit, and isn’t afraid to say so.