Are you wondering how to improve your credit score? Do you know why your score is so low? In this post I will outline what a good credit score is, how to improve your credit score and things to avoid when trying to improve your credit score.
First let me explain how credit scores are rated. Credit scores range from 300 to 850. Generally, this is how the scores are rated:
The most important thing to know when you are trying to improve your credit score is that it will take time. Don’t get caught up in the process and focus on the long-term goal.
You should never pay to get your credit score. You can get a free credit score at creditkarma.com. Once you know your credit score you will need to review your credit report. You can get a free credit report from annualcreditreport.com. Review every entry on your credit report and make sure that they are correct. If there are any discrepancies be sure to contact the agency responsible and dispute the errors.
How to increase your credit score:
- Pay your bills on time. Even one late payment can have a negative affect on your score.
- Pay more than the minimum payment. This will help you pay down your debt faster and you will pay less in interest.
- Have a diverse credit profile. Having different types of open credit will help raise your score. For instance, having a personal loan, a car loan, a credit card and a mortgage is better and more diverse than just having 4 credit cards.
- Pay off cards completely before the month closes out. You can call and ask what day of the month your credit card company reports to the credit bureaus. Be sure to pay your card before that day so they will report a lower balance or a zero balance for your card if you’re paying it off.
- If you don’t have any credit or only have 1 or 2 items on your credit report you may need to open more in order to improve your credit score. Opening new lines of credit or loans may temporarily decrease your score but it will benefit you in the long run if you follow these steps and continue to be responsible.
How I continue to raise my score
A trick that I use to raise my credit score is paying off a credit card completely every single month. I use my bank credit card to pay my gas bill every single month. It’s around $60 and my card limit is $500 so I am using less than 30% of the limit. Every month on the 9th my gas bill is charged to that card and every month on the 9th I make a payment to that credit card for the entire gas bill amount. The gas bill is the only charge I put on that credit card.
So, every month the card gets used and every month it gets paid off completely. Doing this for several months in a row will greatly increase your credit score. Just be sure that you are using less than 30 % of the card limit and it will reflect positively on your credit report.
Things to avoid:
- Do not max out your credit cards. In fact, don’t use more than 30% of your credit card limit. So, for example, if your limit is $1000 you do not want to charge more than $300 to that card.
- Do not close out credit cards. Length of credit history is important so you should keep all cards open, even if they have a zero balance. Some companies will close your line of credit after a period of inactivity but that will not affect you negatively so keep all cards open.
- Do not pay for credit repair services. These companies claim to help improve your credit score and “repair your credit” but that’s just not the case. Anything these companies do you can do yourself. If you are in collections or have bad credit you can contact the collections agencies yourself and start to repair your own credit. Just remember that it will take time.
- Do not pay collections until you have an agreement from the collection agency, in writing, stating that they will remove the debt from your credit report. I go more in-depth on this in my credit score video linked HERE.
A word of advice
One important thing to know is that medical debt has far less of an impact on your credit that credit cards and loans. If you are struggling with unpaid debt and collections you should first focus on the other debt before the medical debt. If you are struggling and unable to pay your minimum payments the first thing you should do is call the debt collector. Whether that be the credit card company, bank or whoever you make your payments to. Call them and inform them of the situation and see if they have any programs or special payment plans that they can offer you.
It’s best to speak directly with the payment collector and together you might be able to come up with a temporary solution to help you during your hardship. It is worth a try if you’re not able to keep up with your minimum payments.
If you are trying to improve your credit score and you don’t know where to start here are some resources that might help you
- ExperianBoost. This is a free service offered by Experian, one of the 3 credit bureaus. Make an online account and Experian will review to your bank account to see if there are any monthly bills that can help “boost” your credit score. It’s almost instantanious and it really works. It raised my score by 14 points in minutes. You can check out ExperianBoost here.
- Get a secured credit card through your bank or credit union. For a secured card you pay the card limit up front, as a security deposit, just in case you don’t pay your bill. So, if you get approved for a secured card with a $300 limit, you will give your bank $300 from your checking or savings account. After about 6 months of paying your bill on time the credit card will become unsecured and you will get your security deposit back. It’s a great way to get a credit card and start improving your credit score.
- Become an authorized user on someone’s account who has good credit. Just be sure that you’re responsible enough to make on-time payments so you don’t decrease both of your scores.
- You can apply for an amazon credit builder account. It works very similarly to a secured credit card. You can apply here.
Want to improve your score and save some money?
I saved the best for last. Apply for a credit builder loan with Self Inc. This is a “loan” that you make payments to each month solely for the purpose of increasing your credit score. Once the “loan” is paid off you will get to keep the money that you paid into that loan. Essentially it’s like a savings account that you are paying into but you have specified terms for payments, like you would for a loan. Your payments will be reported to the credit bureaus so continuous on-time payments will help boost your score. It’s a really cool idea and if you are interested you can check out the details here.
I know this was a lot of information to digest. Please reach out in the comments if you have any questions
One last note. A credit score of 680 is typically good enough to get approved for most loans and credit cards. Once your credit score reaches 740 you will typically be eligible to the best interest rates. So those are the 2 credit scores to aim for on your journey to raise your score.
I hope this was helpful. If you enjoyed it please share this post to Pinterest. If you have any credit related stories I would love to hear about them in the comments. I do plan on making more posts about credit and credit cards in the future so I would love for you to leave some questions or reach out to me on Instagram. Thank you for stopping by!