How to Raise Your Credit Score

Today’s episode discusses 5 ways to raise your credit score and explains why raising your credit score will help you get out of debt faster.

What Is Your Credit Score?

Your credit score has a somewhat secret life. It’s changing and being manipulated by your financial decisions even though it’s out of sight. One of the reasons you need to be mindful of this underground credit world is because it affects how much credit you can get and what interest rate you’ll pay for it. The better your credit rating, the more favorable and less risky you appear to potential lenders, landlords, insurers, and employers, for example. A good credit score helps them quickly approve your applications and offer you the best credit terms available, which can translate to paying less and saving more—which is critical for getting out of debt and then living debt free.

How Should You Manage Your Credit Score?

Your job is to take the mystery out of your credit rating by pulling back the veil as often as you can. You can get your credit reports from each of the three major credit bureaus—Equifax, TransUnion, and Experian—for free once a year. The best strategy is to space them out, so you get a different one every four months. Put it on your calendar to go to annualcreditreport.com, where you can view or download them. Look for any incorrect personal or credit information and be sure to dispute it with the bureau right away. You’ll notice that your free credit reports do not reveal your actual credit score—unfortunately, you have to pay for those. You can purchase your score from the individual bureau websites or even from MyFICO.com. You don’t need to buy your score from each one, especially if all your free credit reports look about the same. The current price at MyFICO.com for a score report from one of the bureaus is $15.95.

How to Raise Your Credit Score

There are five main ways you can positively influence and raise your credit rating going forward.

Tip#1: Pay all your bills on time. Your payment history influences your credit score the most. Never let an overdue account get turned over to a collections agency. Many companies won’t take the time to report an overdue debt to the three credit bureaus, but the collection agencies they hire usually do.

Tip #2: Keep a good cushion of available credit. That means never max out all your available credit lines. For example, if you have a $5,000 credit card limit, a good rule of thumb is to never let your balance exceed 50% of that amount. Keeping a sufficient gap between your current balance and your available credit line shows lenders that you’re not the type to overextend yourself. It’s better to have two credit cards that each have balances below 50% of your credit limits than to have one card that you consistently max out.

Tip #3: Apply for a credit limit increase. If you use credit cards responsibly, but still charge more than 50% of your available limit, apply for a credit limit increase. Call the company or complete an online credit request at their website. The higher your credit limit with the major credit cards, the more likely potential lenders will be extend you credit as well. And higher limits also help you maintain a larger credit cushion.

Tip #4: Have at least one major credit card account in good standing. That shows that you’re responsible with your money. I know that I’ve discouraged you from using credit cards because they’re so easy to abuse. But if you can occasionally make a small charge and pay the bill off in full each month, you can slowly improve your credit rating. If you have credit card accounts that you don’t use anymore, consider keeping them open and just shredding the card. That’s because the length of time that you have credit history is important too. Having a ten year old account with good history, even though you don’t currently use it, will usually work in your favor.

Tip #5: Limit new inquiries on your report. Don’t apply for any new retail charge cards. Many stores try to entice you to do that by offering discounts and promotions for opening a new account. Lots of inquires make you appear too impulsive or eager for new credit. However, checking your own credit report and score, even if you do it frequently, does not damage your rating.

Administrative

The tips in this show came straight from my brand new audiobook, Money Girl’s 10 Steps to a Debt Free Life. Each simple step leads you down a path toward getting out of debt and staying out of debt for good. So head over to Audible.com or to the iTunes store and check it out. 

A couple more things: You can now follow me on Twitter under the username LauraAdams. I’ll share financial tips, resources, and whatever I’m up to. If you forget any of this contact info, find it in the Money Girl section at quickanddirtytips.com