How to Improve Your Credit Score

6 efficient ways to help your credit score

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Establishing and maintaining a good credit score can help tremendously in your financial endeavors.  From purchasing a house to starting a business, most people will rely on credit at some point in their lives.  Also, practically anyone who offers loans, payment plans, or other extended services is going to be interested in your credit score. Businesses and other lenders will want to know if offering their products or services to you poses a risk for them.  Fortunately, a higher credit score can demonstrate that you are responsible and trustworthy when it comes to paying off your loans and bills. Because of this, having a higher credit score allows you to receive both bigger loans and lower interest rates.  Here are some of the steps you can take to improve your credit score over time.

1)  Understand your credit score

The exact formula for calculating your credit score is a mystery, but there are still some general guidelines you can follow.  This will allow you to understand what is actually impacting your credit score.  According to investment planning specialist Matthew Frankel (2017), there are five categories considered when calculating a credit score: your payment history (35%), the amounts owed out of the total limits (30%), the time span of your credit accounts (15%), newly established credit (10%), and your credit mix (10%). Given this model, paying your bills on time and maintaining a low balance can have the most significant impact on your credit score; however, it is important to keep each of these in mind.

2)  Use your credit card

While this might sound counter-intuitive, using your credit card can actually improve your credit score.  As long as you pay off the minimum balance every month, you can establish good credit history and show that you are consistent about paying off what you owe.  Your credit score is largely based on your credit history and the ways you have used it; hence, there will be nothing to base your credit score on if you do not use your credit card.  Also, many credit card companies offer rewards for using their credit cards and you can avoid dealing with the inconvenience of cash, whether it’s visiting the ATM or counting exact change.

3)  High limit, low balance

Since your credit score is affected by the amount owed on each account, it is important to maintain a low balance.  They also compare the balance to the total limit available which makes having a high limit useful.  Even if you don’t intend on ever using it, finding a credit card with a higher limit will make the amount owed look good by comparison. For example, owing $500.00 on a card with a $10,000 limit looks a lot better than owing $500 on a card with a $2,000 limit.

4)  Diversify your credit

Whether it’s credit cards, student loans, or home mortgages, setting up different types of credit can improve your credit score.  Lenders want to see that you have shown financial responsibility across the board; therefore, having different sources of credit will allow them to see how you have handled your various loans and bills.  Make sure that you have enough variety to increase your credit score, but don’t overwhelm yourself.  You definitely don’t want to end up in debt or defaulting on a loan, so only open new lines of credit as needed.

5)  Set up payment reminders

There are several ways you can remind yourself when payments are due.  First of all, many credit card companies offer at least some form of advanced notification.  If you request alerts from your credit card company, they will usually offer notifications by mail, email, or even text.  You can also set up your own reminders to make sure that you don’t miss any payments.  From using a physical calendar to setting up alerts in your phone, payment reminders are a great way to keep up with your bills.  Since your payment history accounts for a whopping 35% of your credit score, consistently paying your bills on time is essential for improving your credit score.

6)  Establish/Re-establish your credit 

If you do not have a long credit history, then don’t open too many accounts at once.  This looks risky to lenders since the time span of your accounts will be very short and they will have not have any other credit history to base your credit score on.  Opening new accounts when necessary and paying them off on time, however, can improve your credit score in the long run (myFICO, n.d.). For people who are trying to rebuild their credit score, opening a new account and paying it off every billing cycle can be an excellent way to re-establish credit and a good payment history.


What is your credit score like? Has it become better or worse over the years? Let us know about your experiences.



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