How to raise your credit score: 5x your on time payments every month

How to raise your credit score: 5x your on time payments every month

Why on-time payments are so important

Making payments on time is critical for keeping a good credit score. Your payment history on credit accounts has the largest impact on your overall credit score. Late payments or missed payments can lower your credit score, while timely payments will help increase and maintain it. That's why you should make sure to prioritize on-time payments and pay all of your bills each month as soon as possible.

When you're attempting to raise your credit score, it's even more important to stay up-to-date with repayments, because the longer you keep accounts in good standing, the better it looks to potential lenders when looking at your credit history.

On-time payments are calculated by using the total number of payments made versus the number of payments that were not made on or before the due date. This means that even one missed payment in a large number of reported payments can have an outsized impact. If you have a good track record with your credit score, one missed payment can be seen as quite a negative mark against you and could drastically reduce your credit score. 

The subscription ecomony

Credit cards are the de facto payment option of subscription-based goods and services. Millions of Americans are part of the subscription economy and increasingly, consumers tend to have multiple, ongoing subscriptions for streaming services, food delivery, clothing boxes, and even pet supplies. Subscription-based businesses are popular as they allow customers to pay one monthly fee for convenience and access to a variety of products and services.

Take paid media and entertainment subscriptions for example. Among consumers in the United States the average number of this type of subscription per person is 12 and for millennials specifically, it’s a staggering 17.

And as consumers enroll in additional subscriptions, their total monthly subscription spend increases. A recent study reported that the average monthly spend on subscriptions was $219 per person, more than 2.5 times what consumers thought they were paying.

How to turn subscription payments into a credit boost

People tend to load up subscriptions on one credit card. While that might be good for budget management, if you can track your subscription payments closely, it’s much better to spread your subscriptions out across all your credit cards and set them to autopay. For example: if you have five monthly subscriptions and five credit cards, spread the subscriptions across all the cards.

Why? If you have five subscriptions each for $10 per month all on one credit card, that’s only one payment being reported to the credit bureaus. However, if you can put one subscription on each credit card, now you have five on-time payment being reported. That means in 1 year, you will have 48 more on-time payments.

Additionally, when you make multiple payments in a month, you reduce the amount of credit you’re using compared to overall credit limit across all your cards, as opposed to making one big payment near your credit card due date.

Credit card information is usually reported to the credit bureaus around your statement date. If you make payments before your statement is prepared, it can reduce the balance reported to the bureaus, which helps your utilization ratio in credit scoring. 

It’s important to keep in mind that this strategy works well when you’re someone with multiple credit cards and when you limit the total number of transactions on each credit card.

What to look for in credit cards to maximize this strategy

If you are looking to use this strategy and want to apply for additional credit cards, look for cards that offer the following benefits.

  • No annual fees
  • Virtual cards
  • Autopay
  • Low limits in case of hacks or theft

Some additional benefits to spreading your subscriptions across multiple cards

Lower your credit utilization. Utilizing a lower percentage of your credit limit on each card can positively impact your credit utilization ratio, which is a factor that affects your credit score. A lower utilization ratio is generally seen as more favorable by credit reporting agencies.

Helpful if you typically carry a balance on your credit card from one month to the next. If you tend to carry a balance over on your credit card frome one month to the next, making multiple payments during each billing cycle can reduce your interest charges overall. Interest accrues based on your average daily balance during the billing period, therefore, the lower you can keep the daily balance, the less interest you pay.

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