How to Increase Your Credit Score
Did you know that credit scores are actually unique to the U.S. (and a few other countries)?
Typically, in the U.S., your credit score is a number between 300-850 that is meant to show your creditworthiness.
So you might be wondering, what the hell is creditworthiness??
It’s basically a way for creditors to see how likely you are to actually pay back your loans and bills in full and on time.
Unfortunately, it doesn’t always reflect that, as outside influences can affect people’s credit score that they have little or no control over.
With that being said, there are ways for you to increase your credit score (or build credit if you don’t have a credit score)!
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What Makes Up a Credit Score?
There are five categories that make up your FICO score. There are different scores that may vary a bit, but for the purpose of this post, we are going to focus on your FICO score. (this is usually the one people are referencing when they talk about your credit score, anyway).
Payment History (35%)
Your payment history makes up the largest portion of your credit score (35%).
This is basically a reflection of your on time payments for your past loans and credit accounts.
Have you paid the minimum payment consistently and on time?
Things like student loan payments, car loans, rent (sometimes), and credit card payments can all contribute to your payment history.
Because this is the biggest part of your credit score, it is the number one most important thing to focus on.
You want to make sure whenever possible that you are paying at the least minimum payments on all of your loans, on time!
Related: How to Break the Paycheck to Paycheck Cycle
Amount Owed (30%)
Now this doesn’t mean that if you have a ton of debt you will have a low credit score.
This section is based partly on the amount of debt you have and also the amount you owe based on your available credit limit.
For example, let’s say you have 3 credit cards. One has a credit limit of $3,000, the next $2,000 and the next $5,000.
This means that your total available credit is $10,000.
A general rule of thumb is that you want to keep your credit utilization at 30% or below.
So in the example above, I would only want to owe a maximum of $3,000 on my credit cards (combined).
Now, that’s not to say that you should keep a balance on your credit cards. Generally they have insanely high interest, and I definitely don’t recommend carrying a balance.
But this is important for you to know if you are carrying a balance and how that balance may affect your credit score.
In the eyes of a lender, using too much of your available credit may look like you are stretched too thin. Therefore, they may see you as a liability.
Length of Credit History (15%)
This part of your credit score takes a look at the age of your oldest account.
It also averages all of your accounts to see what the average length of credit is that you have.
In short, the longer your history of having credit, the better.
Obviously, this may not be something you have tons of control over. But we’ll talk in a bit about how you can go about increasing this part of your credit score!
New Credit (10%)
New credit deals with how many new accounts you have opened and/or how many inquiries (from lenders that are pulling your full credit report) you have had recently.
Generally, the reason this is a factor in your credit score is that opening up too many new accounts may be a red flag to lenders that you are strapped for cash and looking to take out multiple loans that you may not be able to pay back.
Since this is only 10% of your credit score, it’s not a huge part to focus on, but it does have an impact on your score!
If you are trying to be strategic about improving or maintaining your score, new accounts are something to consider the pros and cons of.
Related: How I Paid Off $20k in CC Debt in A Year
Credit Mix (10%)
Honestly, I very rarely ever hear anyone talk about this, yet it could be one of the reasons that there is a misconception about credit scores being an “I love debt score”.
A small percentage of your credit score is made up of what kind of loans that you have (installment, revolving, mortgages, etc.).
An important aspect to consider is that you don’t need a large amount of loans for this part of your credit to be high. This is merely looking at your diversification.
How to Increase Your Credit Score
Okay, now that we have established what your credit score is, why you may need to factor it in as an important part of your financial portfolio, and what makes up your credit score, let’s talk about what to do with all of that information.
Let’s get the bad news out of the way first.
Most likely, there won’t be a way for you to dramatically increase your credit score overnight.
The factors that go into a credit score are purposefully representative of your financial behaviors and decisions over a longer period of time.
Since your credit is built over time, it’s going to take time to change it.
But fear not!
There are ways for your to increase your score! And depending on your situation, these could impact it quickly or in a large way!
Related: 18 Ways to Save Money and Pay Off Debt
Focus on Paying Your Bills on Time
On time payments make up 35% of your credit score, so obviously this is a huge one to focus on!
I understand that this can sometimes be out of your control. But if you have the money on hand to do so, make sure that you are staying on top of your payments.
You don’t want this to be negatively affected because you forgot one of your payments one month.
I recommend keeping your credit card payments on autopay (if you are struggling to pay off your credit card in full, start with just having the minimum payments set to autopay).
You do not have to pay off your credit card in full every month to meet this on-time payment requirement.
This part deals directly with your minimum payments. This may include your car loan, mortgage, rent (if applicable), credit card payment and student loan payment.
Focus on getting in the habit of auto paying these bills, as well as checking in to make sure that the payment went through.
Lower Your Credit Utilization
Your credit utilization is how much you are using of the available credit limit you have.
And since this makes up a chunk of your credit score, it’s one thing to consider when looking to increase your credit.
If possible, you want to keep your credit utilization to under 30%.
So if you are currently carrying a balance on your credit card, and are able to pay some of that down, this may increase your credit by lowering your credit utilization.
You can also lower your credit utilization by increasing your credit limit.
This can be done by opening new accounts (responsibly) and/or asking for periodic limit increases from your credit card company.
As always, I recommend paying your credit card balance off in full every month if you have the available funds.
Related: 15 Legit Side Hustles to Make You More Money
Leave Your Credit Accounts Open
Please please please do not close your accounts. Even if you have sworn off credit cards.
If you want to maintain your credit score, and increase it over time, the length of your credit history matters.
So if you close your oldest account, suddenly the length of your credit history drops.
This can make it look to lenders like you are a riskier investment if you haven’t shown that you will pay back your loans in full over time.
If credit cards don’t work for you, that is totally understandable. Do whatever is best for your lifestyle and budget.
But even if you don’t like to regularly use credit cards, keep the accounts open and active if possible.
Even if you just put one monthly recurring payment on your credit card and have it set to auto pay in full every month, this can have a positive impact on your credit score.
Open A Credit Account As Young as Possible
Obviously you can’t go back in time and open a credit account sooner in your life. But the second best time to open was is now!
I highly recommend doing your own research to decide if a credit card is the best option for you, and which one you should use. But it can really increase your credit to build up credit over time.
And in order to build up credit over time, you have to start as soon as possible!
Personally, I’ve had great success with this card from American Express. Plus using this link gets you $100 back!
Related: 20 Money Mistakes I Made in My 20s
Open New Credit Accounts Strategically
While opening up accounts early is great, it’s important to be strategic about the accounts that you open.
New accounts can have a negative impact on your credit score. So you have to weigh the pros and cons.
I recommend only opening up CCs for their benefits. Find ones that have great cash back opportunities, point systems or offer great mileage benefits.
As you open new accounts the age of your accounts with grow and your availabile limit with grow.
If you can pay off your credit cards every month and not overspend, then they can offer amazing benefits and save you tons of money!
Call and Ask!
You might be surprised what creditors are willing to do if you call and talk to them.
Did you forget about a payment and now its affecting your credit score? Give them a call and see if they are willing to take the missed payment off your credit report.
It never hurts to call and ask, and can often really help out if a one time mistake has happened!
Do You Need a Credit Score?
Short answer? Yes. Absolutely.
Credit Scores aren’t only important when it comes to taking out more debt or loan offers.
Me and my partner live in an apartment that required a credit score check in order to move in. In our area, this apartment was the most cost efficient and had all of the amenities that we needed.
Without decent credit scores, we may not have had the option to rent from here.
While credit score isn’t everything, it’s definitely worth keeping up with and trying to take concrete steps toward increasing when possible.
