Three Ways To Improve Your Credit Score

by John Cooney on Oct 24, 2017

Debt, Credit Report

Having a good credit score is an essential part of maintaining a healthy financial life.  It can be the difference between paying a high interest rate and a low interest rate on a car loan or being turned down for an apartment.  So how can you ensure your credit score is an asset for you?  Unfortunately, there is no easy fix if you currently have bad credit or if you are young and have no credit history, but I have outlined three steps below that can help you build your credit history and ensure it doesn’t hinder your financial and lifestyle goals in the future.

#1 – Check Your Credit Report

Do you know you are allowed to get a free credit report once a year?  You can get one from each of the three largest credit reporting agencies, Experian, Equifax, and TransUnion and can start the request process here.  Once you have the report, what should you be looking for?  First, you want to make sure all the personal information is correct; name, address, birth dates, etc.  Secondly, you want to make sure there are no accounts listed that you did not open; if there are, this could be an indication that you are a victim of identity fraud.  Third, you want to look at your accounts that you did open and make sure that the information for those accounts is accurate.  You want to make sure the amounts listed are correct and that they are not showing any late payments, if in fact none have occurred.  If you do find mistakes, you can dispute these with the credit bureau that has the mistake listed.   One other important note, there are a lot of companies and credit cards that promise a free report, and they may well provide one, but it might be a condition of having an account with them, or making a purchase, etc.  To make sure you are getting a free report with no strings attached, follow the link above.

#2 – Make Your Payments On-Time

More than a third of your credit score is based on your payment history!  Make sure you are making your payments on-time.  Develop systems to make sure you do not miss a payment, like setting up automatic payments for mortgage, rent, and auto loans.  If you do this for your credit card, be careful as these will usually be just for the minimum amount, leaving the balance to accumulate interest.  You need to practice some discipline and make sure you are only charging amounts that you can afford to pay off in full each month.  For all of your accounts, you can set-up email and text alerts to serve as a reminder for you to pay before the due date.

#3 – Pay Down Credit Card Debt

Getting out of debt can seem like a daunting task, and honestly it is.  Rather than be overwhelmed though, attack your credit card debt with a strategy to reduce it.  Having a strategy is important, but it can only be successful if you follow the strategy and if you stop adding to the problem.  So start with identifying what got you into debt to begin with, and make sure you address that issue to avoid compounding your problems.  If you do find yourself carrying a credit card balance or multiple balances, I have outlined three strategies below that you can utilize.  These are not the only three, but they are ones that have been used in the past with success.

                Consolidation – If you have multiple balances and are having trouble keeping track of what is due when, you may want to look at consolidating your debt and taking advantage of a lower available interest rate.  Some credit cards will even offer a 0% interest rate for a specific period (6,12, 18 months, etc.) on rollover balances.  You need to be careful with this option; do not do this if you do not have the discipline to make on-time, monthly payments, and if you are continuing to add to the balance.  Never the less, this can be a very smart strategy for getting rid of high interest debt when used properly.


                Highest Interest First – With the highest interest first method, the aim is to stop accruing high rates of interest, in the shortest amount of time.  For example, let’s say you have three credit card balances, one with 18% APR, one with 15%, and one with 12%, and can afford payments of $300 per month.  Rather than pay $100 to each, you would make the minimum payment due on the 12 and 15% credit cards, and put the remaining funds towards the 18% credit card.  This allows you to pay off the higher interest rate cards first, keeping the interest accumulated to a minimum.


                Snowball Method – Like the highest interest first method, the snowball method is focused on paying off one account at a time, in this case you are paying off the account that has the lowest balance.  With this method you eliminate smaller debts first, freeing your funds up to focus on the larger debts, and ultimately paying off the higher debts, hence the snowball.  This method does have some research behind it showing it as effective and is a favorite of personal finance writer Dave Ramsey.

By paying off your current debt, you lower the total percentage of available credit that you are using, giving you a low credit utilization ratio, which is a factor the credit bureaus will look at when determining your credit score.  Want to raise your score, pay off your debt.

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