How Can I Improve My Credit Score? 8 Ways to Increase and Raise Your Credit Rating

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Maybe you’re sitting at home looking at your credit card statements, realizing that your APR’s [Editor: Annual Percentage Rates] aren’t quite as low as you’d like, or you’ve recently checked your FICO score and notice it’s low.

Credit Score Ranges

You want your credit score in that Excellent check box up there!

Perhaps you want to refinance your home, and want to get the best rates possible before looking into loans.  Or maybe you have a very low credit score, getting deeper in debt and need to do some real work to improve your credit score.

So you’re now thinking “how can I increase my credit score, what can I do?”

If you don’t have any serious debt issues or bad credit blemishes, like a bankruptcy or foreclosure, then raising your score can actually happen quickly.

But if you have more serious debt problems, like maxed out cards, missed payments, or other issues then it’s likely that there will be no quick solution.

But you can begin to change your habits right away.  Payment consistency and time will show you the rewards you need in the long term to improve your credit score.

Whatever your situation may be, here are eight ways to help you increase your score:

#1:  Check Your FICO Score with a Tri-Merge Credit Report

First things first – you need to see exactly where you are at with your credit score.

If you don’t know where you are, you can’t get to where you want to be with improving your credit rating.  Once you know your FICO score, you can create a plan to improve your credit score more easily.  Once a year, request a score from the top three bureaus – Experian®, Equifax®, and TransUnion®.

Here’s a brief rundown of FICO Credit Score ranges (estimated – will vary between companies):

300-550PoorMay be rejected, or only accepted for very high interest rates
551-650AverageQualify for high interest rates
651-710GoodQualify for moderate rates
711-750 Very GoodQualify for very competitive rates
751 and upExcellentLowest interest rates

#2:  Pay Your Bills on Time Every Time

This is probably the most important thing you can do to improve a credit score.

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Not doing this severely impacts your credit score.  If you haven’t been keeping up with your payments, it’s likely that your credit score has dropped substantially.

The first thing to be paid is a home mortgage if you have one.  Next are any high interest rates credit cards that you might have.  If you have the option to balance transfer at a very low APR or 0% interest rate, you should consider doing one.  This will make paying down your credit card debt easier as the interest won’t build as quickly.   Paying down the cards quicker will help with your credit utilization (see Tip #3 below about this).

The only caveat is that you must not spend any more on these cards where you’ve just cleared the balance, or you’ll head right back to where you where – bringing us to the next point…

#3:  Actively Use One or Two of Your Best Cards, Forget the Rest (but don’t close them out)

If you are have a low credit score and are having debt problems, this will require a great deal of willpower to change your habits.

Don’t spend anymore on those additional cards. 

And if the cards that you are actively using are reaching their limits, that means one thing – you need to spend less and budget your money better – and starting paying in cash.  This will be temporary until you can get out your bad spending habits.

If you have an average credit score and aren’t in dire straits with debt, you may want to spend mainly on one or two cards, and occasionally spend on any other credit cards you have.  Just don’t forget to make those payments on time!  The reason for keeping those additional cards open is for maintaining a higher utilization limit.

So what is credit utilization?

It is the total limit of all of your cards combined, which is how much you are able to spend.  If all of your cards are maxed out, then your utilization would be close to 100% – not good.

However if you have low balances, your utilization will be lower.  Say you have a total limit of $20K between all your cards and only have $2K in balances – your utilization is only 10%- that’s good.  If you close a card and drop your utilization to say $10K, your utilization would immediately increase to 20%.  That’s why you need to keep the credit cards open for the time being to maintain a lower utilization.

#4: Don’t Push Your Cards to Their Credit Limits

If you are having an issue maxing out a particular card with a lower limit, try to spread your spending out across another card.  It’s better to keep the utilization down on each card to help improve your credit rating.  Shoot for 25%-30% or lower with your utilization rate, even if you are consistently paying them off in full every month.

#5:  Reduce Your Credit Card Balances All You Can

A recap of a detail in Point #1 but important to mention again.  The more you can pay down those balances, the less interest will accrue for your debt management issues and the lower your credit utilization will be.

As stated above, lower utilization should help increase your credit score quickly.  And that’s less debt to worry about, and more money in your pocket and not in the pocket of the credit card companies or lenders.

#6:  Don’t Apply for Too Many Credits Cards or Loans

Each time your credit score is checked by a credit or loan company, you could potentially lose points from your FICO score.  If you need to do it, it’s better to apply over a short period of time, say a 2-3 week period.  Clusters of credit inquiries aren’t so detrimental; it is when queries occur over a longer period of time.  If you’re already having debt problems, then you don’t need to be looking into more cards or loans – you should be focusing on settling credit card debts and loan debt already.  Part of how you got here is by overextending yourself with debt.

If you are managing your money well, but have just been a bit lazy with paying on time, or not paying attention to your credit score, now’s the time to tighten up and stop making those sloppy mistakes.  This way, you’ll get better APRs and rates for everything.  This will definitely help you not only with credit card rates, but also mortgage rates if you’re in the market for purchasing your own home or a refinance.

#7:  Get a Secured Credit Card

This is very useful to someone who has a low FICO score.  A company offering a secured credit card will require you to place a deposit of several hundred dollars down or whatever the company requires.  This secures the card in case you have trouble with payments.

#8:  Dispute Any Possible Errors or Mistakes

Occasionally, mistakes will appear on your credit report.

If you didn’t do anything to open a new account or have any new inquires made, you can certainly ask to have them removed.  Also if you happened to miss some payments because you simply forgot to pay on time, most companies are quite forgiving when it comes to removing them.  Go to your credit card company or lender directly and ask that it be forgiven.  Of course you must pay on time the next time, but generally this is easy to do.

Finally

Armed with the above information, there’s no need to keep wondering “how can I improve my credit score?”

With the above eight suggestions, you should be able to form a plan of action to improve your credit in both the short and long term.

David Hamilton (aka FPT Guy) is owner and author of Financial Planning Tips – where you can find sensible information on personal finance for the average Joe or Jane. Besides being passionate about his finance blog and helping others keep their finances in check, David also enjoys playing music, staying healthy, spending time with family and friends, and traveling the world.
Published or updated May 3, 2013.

Comments

  1. A credit score is a construct, much like race. For a bank it is a risk tool. For you it gets consumers to buy into the myth of needing debt. Unless you are in an industry that checks credit worthiness to ensure responsibility (security clearance, deal with money), you don’t NEED a good credit score. A credit score just helps you obtain more debt, which is something no one needs. If you pay for a good used car in cash, and since renting never killed anyone, then you don’t need credit, and you don’t need a credit score.

    Finally, owning multiple credit cards around is just too tempting. I wouldn’t recommend keep them simply to increase my credit score.

    • A lot of places and landlords request a credit report and score these days so renting doesn’t get you out of needing a good credit score. Also, employers are starting to use credit scores when hiring. A great credit score can also help you save on various insurance. I even had a credit check when I got my last cell phone plan.

      As for credit cards being tempting, that’s up to the individual person.

  2. Sure, all of these tips will help to raise your credit socre. But why not quit worrying so much about the score, and dump the cards altogether? I feel the benefits of a cash-only life outweigh the inconveniences. Come to think of it, with a debit card – there really aren’t any inconveniences…

    • What about when you go to buy a home?

    • Evan makes a valid point. You need to have some type of credit to qualify for a mortgage loan or an auto loan. And unless you have a whole bunch of cash sitting around, just waiting to be spent, you’re going to need to use a credit card. Debit cards and cash do not affect your credit score.

      • Agreed. A credit score isn’t only about debt these days. So many other places are using your credit score that it becomes important whether you prefer to use cash or credit.

    • It’s true that debit cards and cash only is a great way to live. You don’t overspend and you have the conveniences you need, but like it or not, that credit score does come into play more and more today. I wish it wasn’t such a factor in every aspect of life today.

      • Glen Craig says:

        You have to remember that a credit score is a quick risk analysis for a creditor. They take on risk when they give out a loan. Scores aren’t perfect tools by any means but since it’s the big one being used we need to be aware of them.

  3. While these tips are great I agree with Matt. If you can’t handle credit then use cash. Stop living beyond your means. I love the benefits of credit. There are many, but it can be dangerous to your financial health if you’re irresponsible.

    • Absolutely don’t leave beyond your means! But that doesn’t mean you can’t use credit wisely and have a great credit score.

  4. The FICO score and credit cards are here to stay. Our good credit reports and FICO score allowed us to get the best mortgage interest rate and because of that our mortgage is almost paid off. Homeownership is awesome! Use part cash and part credit cards, and, as noted, simply pay the credit cards off each month!

  5. I absolutely agree with you guys, if you have no self control with credit cards, then use cash until the cards are paid to zero balance. It’s all about the habit. Problem is people use them as credit cards instead of “electronic cash” – which is how I’ve always seen it. Never carry a balance – ever!

    However all the perks that come with credit cards, with rewards points (free stuff), purchase protection, easy to keep track of expenses – can really be taken advantage of – again, if you never carry a balance. And of course have a good credit score for getting better rates for going into good debt like a home or condo purchase, when the time is right.

    But then again I’ve known from the start that I needed to pay off the balances every month in full, and have always had control over my finances and most certainly my credit cards.

    I think the old cut-up the cards routine is passe – just stop using them until you’re out of debt, then never carry a balance again.

    • For a lot of people, they’ve already gotten into credit card trouble. Getting into responsible habits will not only help them financially, but it will also have the added benefit of helping their credit score.

  6. It’s nice to see secured credit cards on the list… I think a lot of people over look those. Besides being a great tool for building (or rebuilding) your credit score, they can be a great tool to teaching responsible use of plastic!

    • It’s surprising they aren’t used more! You can’t spend on the card what you don’t already have. That’s how I use my card which isn’t secured.

  7. All good tips for sure. What about for non credit card tips?

    • A lot of a credit score can be tied to credit card use. But not all of it.

      Check tip #2 – pay your bills on time. These don’t have to be credit card bills. Any bill you don’t pay timely can be reported to the credit bureaus.

      Or tip #8 – Dispute possible errors or mistakes on your credit report. An error doesn’t have to be credit card related.

  8. The one document I wish Wikileaks would release is FICO’s formula. I’d rather know that than any military secret. It’s astonishing that something that affects so many of us so profoundly is proprietary.

    • It would be nice to know but I can understand why it’s a secret. For one, people would figure out how to game the system if they knew the specifics. And also, why should FICO give up the use of their proprietary tool?

      Unfortunately there are no standard rules that have to be followed by FICO and I’ve heard there can be many mistakes and differences between reports from the different credit reporting agencies. That’s why it’s so important to check your reports and scores to make sure what is on there is accurate before you have a situation where you might need your credit score.

      • …why should FICO give up the use of their proprietary tool?

        Agreed, but you could argue that enjoying a monopoly means they should be required to disclose a little more. And as for “gam(ing) the system”, what’s wrong with that? Anything you’d do to game the system would be economically prudent anyway, right? Imagine if doctors kept the secrets of normal blood pressure hidden:

        You: Why is my blood pressure so high?

        Your doctor: It’s a measure of how powerfully your blood is circulating through your blood vessels. The first number is called the “systolic” pressure, and it indicates…

        You: Thanks, but that’s not what I asked. What can I do to lower my pressure?

        Your doctor: I’m sorry, that’s proprietary.

        • Glen Craig says:

          I can see people finding ways to open up accounts just to work up their score if they knew what the score specifics where.

          Blood pressure isn’t the greatest example. That’s science that has been well known for some time. A doctor can’t hide that. Think of it more like Google search algorithm. We have an idea how it works but only Google knows exactly what gets sites ranks as they do.

          There are other credit score measures besides FICO’s. they just aren’t as widely used.

  9. How long do these tips take to become effective?

    • Glen Craig says:

      They could take a while; a few months, depending on when your lenders report to the credit agencies (and what they report).

      But some are more immediate like lowering your credit utilization and lowering your balances (but not instant). Your credit reports show what credit you are using and what is outstanding. The sooner you can get your debts paid off the quicker your score has the potential to change.

      • Thanks for the info. Always curious how people have horrible credit for years, seems like small steps start adding up quickly.

        • Glen Craig says:

          The small snowball turns into an avalanche. But it works the other way too. Many people spend years getting into debt and then expect to get out of it quickly. It takes work, time, and discipline, but it is possible.

          • I guess when we live in a world expecting instant gratification, we expect our credit score to work the same way. Seems like improving your credit score is more like going on a diet, small improvements over a long period of time.

  10. Glass Is Half says:

    Its slightly different here in the UK as they take things you wouldn’t expect into the equation also – for example are you registered on the electoral roll?? – however your tips about not making too many applications in too short a timeframe definitely apply as does your point about paying bills on time. Seems like a no-brainer but unfortunately one that hurts probably the most!

    Unfortunately another big one though is lack of credit history … as someone who only recently moved to the UK, my sterling credit rating in my home country unfortunately did not transfer over with me and it takes a long time to build a credit rating from the ground up. Keeping an eye on my credit report has definitely been worth it and one site I use here is called CheckMyFile which actually monitors all three of the big agencies for a fairly reasonable fee.

  11. I had really bad credit till year 2009, after that year I started to pay off all my collections and cleared all of them even after I paid them all, their shadow is still on my credit report, about 4 of them say “Paid collection” origin of them is over 7 years old however creditors did not report them till 2010 and 2009 so they still seem to be staying on my credit report and damaging it. I borrowed from my bank about $40,000 in this past less than 60 months and paid almost all of it, I also have credit cards with limits up to $15,000.00, 10,000.00 and few more under and about $5,000.00 however I don’t see my credit score crossing the 669 points line. It is always down there even after I established good credit and took care of all my collections. I recently applied for Amazon Credit card and denied, one of the credit bureau score was under 600, I don’t think it’s fairly reported I was mad so I trashed the denial letter but I think I can get another one from Amazon. What is the best way to deal with these idiots can someone tell me?

  12. My frustration lies in the fact I have worked steadily on cleaning up our credit scores after a setback a few years ago. We recently purchased a used truck on credit (emergency) after milking the life from my husbands 17-year-old truck (my car is now 14-years-old.) This purchase dropped our credit scores by about 40 points each.

    When I delved deeper into our credit reports and scoring, I found that while our mortgage is listed in good standing in the report, it’s not being credited as a real estate loan by by the big three. And in their summary reports it says this factor is affecting our ratings.

    HUH? It says right on it, conventional mortgage. With CitiMortgage.

    I’m at a loss as to how to fix this. It’s the actual calculation of our scores by the big three in question, not the mortgage records themselves. When we got the truck loan I knew something was wrong. Interest rate was too high in comparison to our track record and debt to income ratio.

    Well, yeah. If they treat the mortgage as “non-existent debt” or even worse, “revolving debt” then we end up in the pigeon hole we now find ourselves in.

    How to fix this, dunno. But to anyone and everyone, read every last detail of your credit reports. When I talked to the finance person at the bank, she said, oh, well your mortgage is listed so that’s not the problem. And come to find out it’s not. It’s how it’s listed internally with the big three. Score is lower because of this.

  13. I have good-very good credit..and will be graduating from grad school in a few months. After spending a long time in college I have accumulated a substantial amount of student loans and would like to get the best possible rate when I consolidate at the end of this year.
    I have 3 credit cards I use, two with no balance, one I opened last year with a low balance (they actually increased my limit a few months ago) and keep getting pre-approved offers from Discover.
    I am trying to decide whether I should go ahead and open a new card, I am not sure if the increased total limit would outweigh the new account being opened when it comes to my credit score and the APR I can get with that consolidation loan.
    Any advice would be appreciated. Thank You!

    • Hi Steph, I’m not exactly clear on what it is you are trying to do with a new card? Are you trying to consolidate your student loans onto credit cards? Or are you trying to make your debt-to-credit ratio better for your score by having more credit available?

  14. I am trying to get the best possible interest rate on a consolidation loan when I consolidate my numerous private student loans into 1 consolidation loan. Since the total amount is high (8 years at a private rather specialized school) a slightly higher interest rate on the consolidation loan would drastically increase the total amount paid over the life of the loan, some people even end up paying more in interest than in principal.

  15. [I am not trying to consolidate student loans onto credit cards (though one of my loans does have an interest rate higher than that of my existing cards)]
    As far as my credit card situation goes, I have 2 closed citi cards that will be zero balance within a few months (long story), 2 credit cards that i have had for 4+ years both with no balance, and 1 card opened last January with about 25% usage.

  16. My total debt-to-credit ratio for these 5 cards is under 15%. Once the 2 citi cards are gone that will hopefully drop below 10%.
    I know that having a high debt to credit ratio will hurt your credit score, and I have been receiving offers from Discover Card. My dad has a card with them and highly recommends them, they have also offered me an APR lower than that advertised on their website.

  17. I will likely open a card with Discover at some point, I know that cards weigh more when they are more mature, so opening it sooner rather than later will benefit me down the road.
    I also know that opening lines of credit can hurt your credit, and I will be receiving federal loans for this semester; is 3 ‘too many’ new lines of credit?

  18. I already have good credit (this was not the case a couple years ago) but I would like to have outstanding credit when it comes time to consolidate so I get the lowest rate possible and pay as little as possible in interest over the life of the loan.
    What I am trying to figure out is whether the increase in total credit limit (decrease in debt-to-credit ratio) will outweigh the possible detriment that ‘new lines of credit’ can incur.

  19. Found this to be helpful as well, thanks good post. I checked out http://www.creditscoresandcredit.com they offered expert advice and education.

  20. This is really excellent starting advice, especially for someone who ruined his credit in college – you know how that goes. I’m back on the trail to fiscal responsibility however, and it feels good.

  21. When I tried to get a car a few years back, nobody would even talk to me because I had no credit. Unfortunately, I had to turn to JDByrider. Almost 3 years later (and a lot more money than the car is even worth) my car is nearly paid off. I have no credit cards, no bills outstanding, and nothing in collections. Now, here come the questions…
    1. Once the loan is paid in full, how much will that hurt my credit?
    2. Since I have no other debt, I was looking into getting a credit card to hopefully boost my credit score, but with the horror stories told to me by multiple people, I’m at a loss to know what questions to ask and what to look for in a credit card. Any advice would be appreciated.

  22. Szymek Nowak says:

    Seriously, paying bills on times can solve 90% of problems realted with credit scores. It’s so sad that people don’t realize this…

    If I can give one tip from me to everyone reading comments: don’t buy stuff you don’t need – think 10x before you get that new shoes, carpet or whatever. Yes, you will save your money and more money means less financial problems. Good luck everyone!

  23. Great article.

    While I was looking for how to repair my credit, I found a lot of credit repairing companies.I read more about them and I found that most of them use illegal loopholes in the system.So, it is not recommended to use credit repairing companies, because you may have legit problems in time.The best way is to repair it slow.

  24. IT SUCKS COULDNT FIND ANYTHING

  25. I had a few unpaid medical bills on my report and also a balance on one of my credit cards. I refinanced my house and paid the unpaid debts on my report. Will this substantially raise my score or did the refi hurt me? (No late payments on my vehicle or credit card or house pmts.)

  26. Like you said, improving your credit score can save you so much money in multiple facets. Surprisingly, many don’t realize that insurance companies use credit scores to gauge responsibility. Though auto insurance companies don’t use it as a huge factor affecting premiums, it is still weighted into their calculation.
    However, the biggest personal experience I’ve seen is the increased interest rate costs when buying a large business. Insane how a $20 late fee from Macy’s can cost you tens of thousands in higher interest fees.

  27. Do most lenders gather info from all credit reporting companies?

    With a score right at 600 I find it near impossible to get credit. I opened a secure CC for a couple hundred and even though I’ve been paying regular I’m now told that a $200 CC actually hurts my score. One of my payments in 18 months went over 30 days because I somehow missed it so the company won’t give me an increase yet. It’s hard to get enough revolving credit when no one will give you credit. So when you have four old collections (paid) but only two good things forget about it!

    • I’m thinking the reason the $200 secured credit card hurts is because you may be maxing out your available credit often. You’re paying off your card, which is great, but if you are maxing out your limit then your credit used ratio will be very high which looks bad for a score. It’s possible having the same card but only charging $5 monthly would help you more (just a thought).

  28. Credit cards don’t cause credit problems, people who misuse credit cards cause credit problems. As stated previously, the best solution is to pay for everything in cash. But, for most people in certain circumstances this is not possible or feasible. Most people do not have large enough cash reserves to pay for homes, cars, medical expenses, etc. This is where credit comes into the picture.

    Unfortunately, some people fail to control their spending and eventually start to have debt and credit problems. The 8 tips provided in this article can go a long way in getting your credit “house” back in order. It takes time but it can be done.

  29. I understand how important good credit is to life in our society. But have any of you stopped to wonder if this is actually a good thing?
    Is it actually a good thing that we can’t do any of the normal, expected life things in our society without a magical number handed down by some corporate giant who keeps reams of data stored about us?
    Has it really always been this way? Or have americans just allowed this to happen?

    I have good credit, that doesn’t mean I like the thought of it. I mean do you really think it’s a good thing that to rent a house you have to allow your landlord to get such personal information about you? To pull an account of every account you own, their history and etc?
    Do you think it’s a good thing that to get electricity in your house you have to allow that utility company access to, again, the same personal private info about your finances?

    Sorry, I can’t think of any way such consistent invasion of privacy is a benefit.

    • Glen Craig says:

      I do agree it would be something of an invasion of privacy for a landlord to pull your credit history. I’m trying to think back to when we rented…I think we gave the landlord our scores, I’m not sure we gave him our history though.

      Unfortunately it’s the system that’s out there now. When companies lend money, or landlords rent their homes, they are taking a risk. Credit scores are a fast way to determine what that risk is.

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