As you probably already know, having “good credit” can help you get favorable interest rates on loans and may even make you look like a good candidate for a job or an apartment rental. But how can a person achieve the abstraction of “good credit?” There are a few ways. Here’s a look at one: raising your credit limit.

Factors that Determine Your Credit

When people talk about “good credit,” they’re generally referring to a person’s FICO score, which is calculated based on the following components:

  • Payment history (35 percent): It’s good to pay on time; it’s bad to pay late or not at all.
  • Available credit ratio (30 percent): It’s best to use 10 percent or less of your available credit (more below).
  • Age of accounts (15 percent): Older accounts are better, as they show how you behave in the long term.
  • Credit inquiries (10 percent): Every time you apply for a loan or a new credit card, the issuer checks your credit. Fewer inquiries are better.
  • Diversity of credit (10 percent): It’s best to have a variety of credit types.

When trying to improve your credit, it may be overwhelming to worry about improving all of these elements at once. Here’s a look at how to improve your credit by focusing on your available credit ratio.

Why Your Credit Ratio Matters

Let’s say you have access to hundreds of dinner plates but you only ever use five at a time. If you wanted to apply to borrow a hundred bowls, the bowl lender would look at your plate usage and agree, assuming your bowl usage would mimic your plate usage, and minimally affect their bowl balance.

Credit is the same way. It looks good to lenders if you use less than you can use because that suggests that you’re not living off of your credit cards—in other words, you have money to make payments. So if you want to raise your credit limit solely to charge up to that new limit, chances are you won’t be able to.

But, as this WiseBread.com post points out, if you want to raise your limit to improve your credit score and qualify for, say, a mortgage loan, you may be able to. Here are two techniques to try:

  • Charge and pay: The above article suggests charging up to half of your limit on a credit card and paying it off in full for several months. Because credit card issuers make money on each transaction, they might raise your limit automatically in hopes that you’ll continue such behavior for your new limit.
  • Call and ask: If, after several months of the above technique (or otherwise maintaining an account in good standing), the company doesn’t raise your limit automatically, call and ask for a limit increase.

Remember: if you manage to get your limit raised, maxing out at your new limit will defeat the purpose and not help improve your credit score.

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