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When you raise your credit score, you raise the number of advantages available to you in the real world. Those with a high credit score often end up with lower rates, less required up-front cash for deposits, easier access to credit, and potentially favorable treatment when it comes to renting an apartment or even landing a job. Follow these four steps to raise your credit score and you will be on the path to a higher FICO score over the next 12 months.
step 1
Get your credit report
Granted, getting your credit report or credit score will not actually raise your credit score, but it will put you in position to control your credit score. You can get a free credit report once a year at AnnualCreditReport.com, and you can request a copy of the report if you have recently been turned down for a loan. When you have your credit report in your hand, you can review it for errors and accuracy. Many people find that some data is not reported properly or some negative items, such as a collection effort, are reported without having any knowledge of such an incident. With your credit report in hand, you can dispute inaccurate information and review your existing accounts to see what you can tackle first. You can also get a feel for the number of inquiries your credit report is being hit with, and whether or not inquiries are happening without your knowledge. Once you have this snapshot, you are better equipped to not let your credit score control you or your financial future.
step 2
Prioritize your budget
Typically, people with higher credit scores know where they are spending their money, how much they owe and how much is in the bank. This should go without saying, but many of us find ourselves in financial trouble and when we’re asked how it got this bad, the answer is often, “I don’t know.” Get your credit card statements and identify exactly what you are spending your money on. With a thorough review of your credit card statements, you may uncover hidden fees that can be recouped, recurring charges that you can cancel (you may have no idea how they got there in the first place), and you'll have a full profile of your spending habits. Once you can pinpoint exactly where you are at, you will be in a strong position to cut certain expenses, prioritize which debts to tackle first (based on interest rates), and start to put aside some extra cash (which is critical to the next step).
We have two more steps to help you raise your credit score after the break…
step 3
Pay down your debt
It sounds like a cliche, but paying down your debt and paying on time are really the only ways to improve your credit score. The FICO score formula is nuanced and complex, but sticking to the basics will work wonders for your score over many months. Paying down your debt -- not just moving it around -- serves many purposes: Apart from being your path to financial freedom, it frees up more available credit (which reflects positively on your credit score). That is, if you are only utilizing 10% of your available credit versus 90% of your credit lines, your score will inch up. More importantly, being over your limit is one of the worst things you can do for your credit score, and it comes with a slew of fees from your issuer. When paying down your debt, do so on time. The longer your history of paying on time, the higher your score will be; this consistency will also start to dilute the impact of older delinquent or late payment notes on your report. For a short-term boost, if you know you will be applying for a big loan soon, pay down as much of your cards as you can. It may be a little superficial, but when the creditor runs your report, they will see a lower debt utilization ratio.
step 4
Keep old accounts open and active & don’t open new ones
A review of your credit report may show that you have a few accounts that are open with zero balances that perhaps you did not know existed. You will be tempted to close them in an effort to clean things up and put the past behind you -- do not do this. As you close your accounts, you reduce your overall available credit limit (the sum of all of your open limits). This in turn increases your debt utilization ratio and subsequently lowers your credit score. Avoid this by retaining the accounts and using them -- yes, we’re telling you to use these accounts. We are not saying to go on a wild spending spree, but if you are using a single credit card and come close to the maximum limit each month, spread it out on different cards. It works better for your credit score if your debt is spread out across multiple accounts rather than loaded up onto one. Plus, you may benefit from having payments due at varying times of the month (which helps with cash flow) and find out that some cards may be better suited for certain purchases. For instance, if you get 2% back on restaurant dining using one card, you are better to use that card when you go out to eat rather than the one that gives you 1% back on everything.
Finally, do not open new accounts unless you feel fairly certain that you will be approved. Inquiries to your credit report reduce your score, and obtaining extra credit can lead you down a path that makes it easier to increase your overall debt load, which is bad news for your credit score.
step 1
Get your credit report
Granted, getting your credit report or credit score will not actually raise your credit score, but it will put you in position to control your credit score. You can get a free credit report once a year at AnnualCreditReport.com, and you can request a copy of the report if you have recently been turned down for a loan. When you have your credit report in your hand, you can review it for errors and accuracy. Many people find that some data is not reported properly or some negative items, such as a collection effort, are reported without having any knowledge of such an incident. With your credit report in hand, you can dispute inaccurate information and review your existing accounts to see what you can tackle first. You can also get a feel for the number of inquiries your credit report is being hit with, and whether or not inquiries are happening without your knowledge. Once you have this snapshot, you are better equipped to not let your credit score control you or your financial future.
step 2
Prioritize your budget
Typically, people with higher credit scores know where they are spending their money, how much they owe and how much is in the bank. This should go without saying, but many of us find ourselves in financial trouble and when we’re asked how it got this bad, the answer is often, “I don’t know.” Get your credit card statements and identify exactly what you are spending your money on. With a thorough review of your credit card statements, you may uncover hidden fees that can be recouped, recurring charges that you can cancel (you may have no idea how they got there in the first place), and you'll have a full profile of your spending habits. Once you can pinpoint exactly where you are at, you will be in a strong position to cut certain expenses, prioritize which debts to tackle first (based on interest rates), and start to put aside some extra cash (which is critical to the next step).
We have two more steps to help you raise your credit score after the break…
step 3
Pay down your debt
It sounds like a cliche, but paying down your debt and paying on time are really the only ways to improve your credit score. The FICO score formula is nuanced and complex, but sticking to the basics will work wonders for your score over many months. Paying down your debt -- not just moving it around -- serves many purposes: Apart from being your path to financial freedom, it frees up more available credit (which reflects positively on your credit score). That is, if you are only utilizing 10% of your available credit versus 90% of your credit lines, your score will inch up. More importantly, being over your limit is one of the worst things you can do for your credit score, and it comes with a slew of fees from your issuer. When paying down your debt, do so on time. The longer your history of paying on time, the higher your score will be; this consistency will also start to dilute the impact of older delinquent or late payment notes on your report. For a short-term boost, if you know you will be applying for a big loan soon, pay down as much of your cards as you can. It may be a little superficial, but when the creditor runs your report, they will see a lower debt utilization ratio.
step 4
Keep old accounts open and active & don’t open new ones
A review of your credit report may show that you have a few accounts that are open with zero balances that perhaps you did not know existed. You will be tempted to close them in an effort to clean things up and put the past behind you -- do not do this. As you close your accounts, you reduce your overall available credit limit (the sum of all of your open limits). This in turn increases your debt utilization ratio and subsequently lowers your credit score. Avoid this by retaining the accounts and using them -- yes, we’re telling you to use these accounts. We are not saying to go on a wild spending spree, but if you are using a single credit card and come close to the maximum limit each month, spread it out on different cards. It works better for your credit score if your debt is spread out across multiple accounts rather than loaded up onto one. Plus, you may benefit from having payments due at varying times of the month (which helps with cash flow) and find out that some cards may be better suited for certain purchases. For instance, if you get 2% back on restaurant dining using one card, you are better to use that card when you go out to eat rather than the one that gives you 1% back on everything.
Finally, do not open new accounts unless you feel fairly certain that you will be approved. Inquiries to your credit report reduce your score, and obtaining extra credit can lead you down a path that makes it easier to increase your overall debt load, which is bad news for your credit score.
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