A reader asks: I’m trying to get my credit score growing again. I’m in school full-time and work full-time, too. I have just one credit card – a Wells Fargo student card — that greatly helped my credit score when I first got it. However, in the last four months my score (from CreditKarma) has been stuck at 699. My only other credit accounts are student loans totaling $30,000. Is there anything I can do to grow my credit score faster, or do I just sit tight and hopefully something will change? – Selina
Answer: If you’re new to credit, there are a number of things you can do to speed up building a good credit score. You didn’t mention it, but I assume that:
- You’ve paid your credit card on time every month and
- You don’t have a big balance on it
(If that’s not true, focus first on timely payments and/or paying off the balance). But if I’m correct, you might actually consider getting a second credit card. You don’t have to use it very often (if at all), but adding a third account and a bit more available credit might help your score grow after a few more months.
Why more credit sometimes helps your credit score:
Credit scores are funny. I know it seems counter-intuitive that someone with more credit cards is a better risk than someone with just one.
But it’s true: to a point.
A good credit score is earned by managing credit well. Until you do that, the credit bureaus don’t have any way to say what kind of credit risk you’ll be. It’s a lot like safe driving. Insurance companies often give discounts to drivers who haven’t had a ticket or accident in a couple of years. But when you first start driving, you can’t get that discount because there’s no data to indicate whether you’re a safe driver. So showing you can manage a few different credit accounts is a good thing.
The second reason this will help is for what’s called your debt utilization ratio. This is the percentage of the credit limits on all of your credit cards that you’ve currently borrowed against. For example, if you have two credit cards with $500 limits, you have a total credit limit of $1,000. If you have a $600 balance between the two cards, your utilization ratio is 60 percent — you’ve used 60 percent of your total credit limit.
With utilization ratios, lower is better, and a high ratio will decrease your credit score. And it doesn’t matter if you pay off your balance each month or not – the metric is calculated using your card balances at the end of every month.
So there are a few ways to improve this number:
- Only use a small percentage of your credit line.
- Pay your card balances down before the closing of the statement cycle. (This will reduce the month-end balance that is used to calculate this number.)
- Increase your available credit.
If suddenly you get a new credit card with a $1,000 limit, now your total available credit is $2,000 and your utilization ratio becomes 30 percent instead of 60, which is better for your credit score.
A couple things to keep in mind:
Just because two cards may be better than one, I would stop there for now.
As the result of a new inquiry on your credit report, your score might go down after you apply for a month or two, but in the long run it should go up.
You don’t have to do this; if you stay the course and pay on time your score will slowly creep up. You may also be able to ask Wells Fargo for a credit line increase which would have a similar effect.
At this point, however, I suspect that your short credit history is the biggest factor in your score, and it will just take a couple more years to see it jump significantly.