10 Ways to Improve Your Credit Score

Congratulations! You just finished college and are starting the journey of adulthood. Woo Hoo! 😊

Unfortunately, reality has just set in. Those tens of thousands of dollars in student loan and credit card debt that have been piling up have now just become due! Your credit score is lower than your blood pressure at your last checkup. Now what?

Fear not, there is a way out! In this article, we’ll dig into why a good credit score is important, why it is a lifeline for financial success, and 10 ways to start improving credit scores today!

financial strategy

Why a Good Credit Score is Important

Like I talked about in a previous article, that while IMO Cash is King, a good credit score is vital for financial success.

Even though I talked about cash being king in a previous article, the reality is that a good credit score is vital for financial success. With a good score, a person will qualify for the lowest interest rates on credit cards, car loans, mortgages, etc. This credit buffer comes in especially handy if an emergency arises before a 6-month emergency fund can be saved up.

The harsh reality is that credit is a person’s lifeline to financial success. Creditors and lenders are not the only ones concerned with credit scores. Credit scores impact the ability to rent an apartment or house. Insurance companies use credit scores to determine insurance rates. Employers have been known to check credit scores and use as a factor in hiring decisions.

Literally, a person’s entire adult life is dictated by how high of a credit score a person achieves.

Fear not, there is help. Today’s articles talked about 10 ways to improve your credit score. Let’s get started…..

10 Ways to Improve Credit Score

  1. Make Timely Payments

Another way of saying it is to always pay your bills on time. Paying bills on time is the cardinal rule for maintaining a good credit score. The reason is that this is one of the most contributing factors to a good credit score.

If you have trouble paying bills on time, try doing the one or all of the following:

  • Enroll in autopay. This way payments are always on time and done automatically. To make it work, literally just set a date for the company being paid to extract money from your account and they do the rest. It literally is “set it and forget it”.
  • Register for billing alerts. Alerts can give you reminders before the payment is due. Apps like Personal Capital or Mint can be set up to provide billing alerts letting you know when payment is due.
  • Use Outlook or Google calendar. I used my work calendar for everything both personal and professional. I am always on the computer, so it only makes sense to consolidate into 1 place. Setup a recurring appointment that flags you when time to pay a bill. Viola! 😊

The key point is to find a system that will consistently work for you.

  1. Low Credit Card Utilization Rate

In English, a credit card utilization rate is what percentage of the total credit card limit is being used. If you have a 3 credit cards with a $25,000, $15,000, and $10,000 limit respectively the total credit limit is $50,000. If a person has a 10% utilization rate simply multiply $50,000 * 0.10 = $5,000. A person has a total balance owed of $5,000 on all 3 credit cards combined. Typically, a utilization rate of less than 30% is considered good.

The flip side to obtaining a low credit card utilization rate is to request a credit limit increase. Call the credit card company and ask for a credit limit increase. You will be surprised by what can happen simply by asking for it. Using the same example above, assume the 3 credit card limits are now $25,000, $20,000, and $25,000 respectively for a new total credit limit of $70,000. To find the new utilization rate, divide $5,000 by $70,000 to get a 7% utilization rate.

  1. Keep Old Accounts Open

Another contributor to a credit score is account age. The longer the age of the open account, the better the credit rating. On the flip side, be careful not to close accounts too early since this will also impact credit scores.

The reason is it shows that a person has more experience managing debt and gives a lender more data points to determine a person’s credit worthiness. Therefore, it makes sense to keep old credit cards / credit accounts open even if not actively used.

  1. Monitor Credit Report

One of the best ways to fix credit problems is to proactively monitor your credit report looking for problems. If caught early, the impact to credit history can be negated. If not caught in time, reporting errors can wreak havoc on credit history. If errors found, dispute immediately.

When checking your report, keep an eye out for anything unusual such as:

  • Incorrect account details – examples include a payment reported as late that you know was made on time.
  • Overlooked past-due accounts – examples include a forgotten old account balance that needs to be resolved.
  • Fraud or identity theft – examples include large charges that may have been made several states away from residence (happened to me once! ☹), a credit inquiry not recognized, or an account opened that you know you never did.

By law, you are entitled to a free annual credit report every 12 months from each of the Big 3 reporting agencies (Equifax, TransUnion, and Experian). If inquiring to each credit agency more than once a year, it will ding your credit history. A good strategy is to request a credit report every 4 months from a different reporting agency.

The reports are great for finding detailed problems and using this information to figure out how to fix your credit history.

Depending on what is being checked, a better option may be to use financial services to check basic things (i.e. credit score, derogatory remarks, etc.) such as Mint or Personal Capital AND does not ding your credit score. I use Mint all the time to keep track of my credit score, average age of credit accounts, outstanding derogatory remarks, etc.

  1. Maintain a Variety of Accounts

To get a top-tier credit score, it helps to show that you have experience with a variety of types of credit. The types of accounts can include but not limited to:

  • Revolving accounts such as credit cards and home equity lines of credit
  • Installment accounts such as student loans, auto loans, mortgages, etc.

If you only have a few credit accounts, make sure the account opened will be reported to credit bureaus. A credit score is impacted by both the number of accounts open and if accounts are properly managed. A good trick to use is to open a new credit account (i.e. home equity of credit, a credit card, etc.) and DO NOT use it! This can positively impact your perceived ability to manage credit, account longevity, and utilization rate.

Listen, I didn’t make the rules, I just figured out a few tricks to make it work in my favor! Lol 😊

how to improve credit score

  1. Keep Finances Healthy

One of the best ways to improve a credit score is by maintaining healthy finances. Healthy finances prevent leveraging credit to pay for bills, emergencies, and unexpected repairs. While building credit, make it a priority to create and stick to a budget, build an emergency fund of at least 6 months of expenses, and maybe even create a side hustle. Check out the attached links to learn more…….

Maintaining healthy finances will not only allow you to pay off debt faster but manage credit more efficiently by using the extra money to pay down debt and improve credit utilization rate.

  1. Use Credit Wisely

Even if you have a large amount of credit available, it doesn’t mean that it must be used. Credit should be used intelligently, even strategically.  My rule of thumb is to use credit for purchases only in large amounts to take advantage of cash back incentives AND ONLY if the money is readily available to payoff the purchase within a month.

I have found that it was not the big purchases that caused me credit chaos but rather the several dozen smaller “nickel ‘n’ dime” purchases that were never paid off and compounded over time. Credit is NOT a free ticket to get rich. Use it for what it really is, a short-term loan to get you through an unpleasant situation.

  1. Become an Authorized User

If you have a family member or a loved one you trust who has a good credit score, that person can add you as an authorized user to their account. Technically, it allows you to make purchases even though the primary account holder is ultimately responsible for payments. In reality, you are just piggy backing on their credit history to benefit you.

That person’s responsible use of credit can then rub off on you via your improved credit history. The best part is that there is no credit check or application needed to become an authorized user. It’s quick and easy.

The flip side is you need to be sure that person has a solid credit history AND that you don’t take advantage of their generosity. They are putting their credit score on the line for you so use it wisely.

  1. Obtain a Secured Credit Card

If suffering from a low credit score and cannot afford the high interest payment of the credit card you can use, consider a secured credit card. A secured credit card can be used to make purchases like a traditional credit card. It is considered “secured” because it requires you to put money down as a security deposit to open the account.

When owning a secured card, some credit card companies (i.e. Capital One) will report your status to credit bureaus. If making timely payments and using the card responsibly, this card can be used to improve your credit rating.

  1. Practice Patience

Like climbing a mountain, building a good credit score takes time. It does not happen overnight. While it is easy to destroy credit, it can take months or even years to build it up. Be patient and trust the process. Learn to manage what you can control. It can take some time to get started but will take off once good habits are established.

The fastest way to improve credit score is through the effective management and timely payments of things used every day: student loans, utility bills, streaming subscriptions, car loans / lease payments, and of course, credit cards.

All of these play a role determining success or failure when managing your credit history.

Key Takeaways

Improving your credit score can make it both easier and cheaper to borrow. It has lots of fringe benefits, but it doesn’t happen overnight.

Building a strong credit history takes time. That’s why it makes sense to adopt good credit habits now even if you aren’t planning to apply for new loans soon.

Keeping up a good credit history is a lot like staying in shape. You must work at it regularly to stay at the top of your game and push yourself a little harder each and every day. Stay up with your progress to make small but measurables advances.

staying financially fit

It can be slow going at first, but once the initial inertia is overcome success can be addicting! Watching your credit score improving is like watching the slot machine show 3 cherries in your favor….. beautiful!

Stick to it, I know you can do it, ….. and you’ll be glad you did!

Live the Life You Love, Want, and Deserve! 😊