If you’re considering buying a house or taking out a loan next year, you’ll want to get your credit rating in the best possible shape. But what’s the best way to approach it?
In a Reddit “Ask Me Anything” thread posted earlier this year, an advisor from a major credit card company took dozens of burning personal finance questions from the public, and quite a few concerned how to improve your credit.
The advisor asked to remain anonymous, but Reddit vets all experts before they host an AMA thread. We’ve also reviewed the responses and found them to be accurate. Here’s how the advisor suggests you tackle your credit rating:
Q: What’s the best way to increase my credit rating so banks are knocking at my door with awesome offers?
A: Unfortunately, the best answer for this one is always going to be TIME. But there are a lot of factors that you can do that will speed up some of the process. Do not do any balance transfers between your credit cards and stay away from cash advances. Mortgages will always make sure your “debt-to-income” ratio is low. This means that if the amount of debt you have is close to what your annual income is, they will likely reject you.
Q: Does how much credit you have matter as much to potential credit lenders as how well you make payments?
A: Having a card or two with a higher limit is good. But you don’t want too much unused credit either. The biggest thing you’ll find with loans is that they are looking for HOW MUCH history you have with your current creditors. The longer the better.
Q: Is it better to pay off your entire monthly balance, just the minimum, or somewhere in between?
A: Never ever ever ever ever EVER just pay the minimum. Let me stress that again for emphasis: NEVER PAY THE MINIMUM! Paying off the monthly balance is beneficial to both you and your creditor. It builds history, which is good for your score, shows you’re responsible, and you never earn interest.
Q: Was I stupid to pay off two credit cards and then cancel them?
A: It can hurt your credit. That doesn’t mean it will. If you have other cards that you’re still using and have other loans (mortgage, car, etc.), you should be fine and there should be minimal damage. If those were the only two lines of credit you had, then you might have hurt it more than you think.
Some questions and responses have been edited for clarity.