If you are trying to bring your credit score up, you may find yourself at a loss as to where you should to begin. With so much advice floating around the Internet, you may not be sure where to start. So, how do you raise your credit score? It’s not easy, and it takes time. But once you have reached your goals, it can be truly satisfying to know that you are guaranteed to be approved for a mortgage or personal loan.
Before you read this article, keep in mind that you don’t have to do all 40 of these things to help bring up your score. You may be able to find just a few tips that will apply to your specific situation.
40. If You’re At Zero, Get a Secured Credit Card
Ever since the financial crisis of 2008, it became far more difficult for young people to get their first credit card. And if you were in a bankruptcy, you may struggle to get a new credit card after a while, too. Nowadays, there is something called a “secured credit card”. In case you did not know, this is a credit card that you actually pay for.
Sounds backwards, right? Aren’t credit cards supposed to be all about borrowing money? Well, a secured credit card requires a deposit, because they are not sure if they can trust someone with a zero credit score. So the payment is necessary just in case you miss a payment. Remember that the whole point of this is to build your credit score. Once you have a score established, you can move on to better cards.
An alternative to getting a secured credit card is to become a secondary user on someone else’s card. Some financially-savvy parents choose to do this for their children. Believe it or not, even someone under the age of 18 can be added to their parent’s card, and they begin benefitting from that positive credit history at an early age. Every credit card company is different, so if you are considering putting your child on as a user, check their restrictions on age limits. (Some expect a child to be between the ages of 13 to 16.)
Even as an adult, you can ask a friend or family member if they would be willing to put you as a secondary card holder on their account. This can be especially useful if you have been through a bankruptcy, or if you would rather not pay for a secured credit card.
This might seem like a no-brainer, but if you want your credit score to go up, you should be monitoring your score online. You can sign up on CreditSesame for free. (You should never have to pay to see your credit score.)
Once you sign up for Credit Sesame, you can begin to receive e-mail or text alerts every time there is a change to your credit history. You will be notified every time your score changes, an account closes, or one opens up. Once you have this feature enabled, you will know immediately if there is any suspicious activity.
It is extremely important to get your credit report, because it will list everything that you owe. It will also list any bankruptcies or negative marks against yours score that may be negatively affecting you.
You can get your three reports once a year through AnnualCreditReport.com. Every US citizen is entitled to get a free credit report from the three major credit bureaus. If you want to know more about the process, the US government’s website has a whole step-by-step guide that goes into deeper detail on how to get your credit report.
It might sound like a no-brainer to some people, but if you want your credit score to go up, you need to pay your bills on time. Some credit card companies will allow you to pay up to two weeks late. However, you will owe a late fee. These late payments will stay on your record with the credit card company. And if it goes beyond 2 weeks, it gets worse.
If you are 30 days late paying your credit card bill, your score can drop as much as 100 points. Ouch. That can severely hurt your credit score journey. It will also stay on your record for a very long time, and it will count against you when you go to apply for loans and cards in the future.
There are some people out there who decide to skip their monthly credit card payment when they are struggling to pay the bills that month. They make up for it by paying double the next month, plus the fees. This is one of the worst things you could possibly do for your credit score.
While a credit card company may not take you to court after just one month of non-payment, that does not make it okay. These missed payments will show up on your credit report. If you know that you are going to struggle to pay your bills on any given month, always prioritize your loan and credit card payments above other things that could be trimmed down like entertainment, going out to eat, or groceries.
34. Arrange to Get Credit For Your Phone and Utility Bills
Normally, a credit score is meant to measure how well you pay back debt in a timely manner. A lot of young people make the mistake that if they pay their bills on time (like a cell phone plan) that means they have a good credit score. Historically, phone and utility bills never affected your credit score, unless you owned them money for the service. In that case, your score would go down from when the collections agency notified credit bureaus. So paying for services does not usually count towards the score…That is, until now, if you choose to opt-in to a special program.
One of the credit bureaus, Experian, decided to come out with their program called Experian Boost. This is a program where they will arrange to get the information for your utilities and phone bill to count towards your overall score. Unlike credit cards, this will not happen automatically, so you must sign up for the program. At his moment, Experian is the only credit bureau that is offering this option. So TansUnion and Equifax are still not going to count your utilities towards your credit score. Usually, lenders will take an average of all three agencies to get your final score.
When you first get a new credit card, you may feel tempted to spend to your heart’s content. If it is necessary to make a big purchase right away, it’s okay to do so if you know that you can pay it back quickly. However, nearly maxing out your credit cards on a regular basis can be very bad for your score. Credit utilization should never be higher than 30% of your total limit. For example, if you have a credit card with a $1,000 limit, you should never borrow more than $300, unless it is an emergency.
The closer you get to maxing out your credit card, the lower your score becomes. Even if you are paying your bills on time every single month, high credit utilization will stop you from having the high score that you deserve.
One of the best techniques to get a nearly-perfect score is to pay off your credit card bills in full every month. This only works if you never borrow any amount that you could not normally afford in the first place. For example, imagine that you use your new credit card to pay $100 on gas to drive to work. When you get the bill, it might say that you only owe a $15 minimum payment, but you should pay off the entire $100 balance, and start back at $0 owed.
In this scenario, you need to pay that same $100 on gas no matter what. So you might as well see that as an opportunity to get good credit every month. However, this is easier said than done. The temptation to borrow money to buy things you want is always going to be there.
Technically, your debt-to-credit ratio will not directly hurt your credit score, but you still need to take this into consideration when you are planning to apply for credit in the future. Are you borrowing more than you can actually afford to pay off comfortably with your current income? The “Debt-to-Income Ratio” or DTI, is when creditors look at your overall debt, versus your income. If you owe too much debt compared to how much you make, you are likely to get offered to borrow far less than you may have hoped.
To find your DTI, add up all of your monthly obligations. This would be your monthly payments for your mortgage, child support, student loans, credit cards, car loan, etc. Next, divide your monthly gross income by the total amount you give away to debt. Your monthly payments towards your debt should never exceed 36% total, and your mortgage should never be more than 28% of your income.
As the years go on, you may get the opportunity to refinance your debt to a lower interest rate, or an easier-to-manage payment plan. For some people, refinancing their mortgage and credit card debt can seriously cut down on their overall repayment.
However, make sure you do some math and compare both options side-by-side before you say “yes”. Just because the advertisement and sales people tell you that you can save x-amount-of-dollars each month doesn’t meant you always will.
Every time you apply for a new line of credit, this will “ding” your credit score for a hard inquiry, and bring it down. If you get accepted and a new card opens up a line of credit, the number of points your score will go up will make up for the ding. However, if you keep applying for multiple cards in a short period of time, this can be very bad.
A lot of credit card companies are also looking out for people who take advantage of sign-up bonuses. Every credit card company has different rules, so it can get a bit complicated. However, a good rule of thumb to follow is that you should wait at least 2 months in-between signing up for new credit cards.
Getting rejected for a credit card application can hurt your ego, but it also damages your score. And if you are trying to apply for a loan because you need it, you may end up applying to and getting rejected by multiple loans in one day. Earlier in this list, we mentioned how debt-to-income ratios work. Instead of jumping into a situation where you may be rejected, you should do some research, first. Check your DTI, credit score, and the amount of money you wish to borrow.
If you are looking to apply for a credit card, you can check your odds online, too. For example, some credit cards have an “elite” status, and they only accept people with “perfect” scores who make above $100,000 per year. So it would be silly for someone who only makes $25,000 a year with a 600 credit score to apply to that elite card, because it will just show up as a hard inquiry and rejection on your credit report. Thankfully, the Internet is full of all the information you could possibly need. Always do your research of your odds ahead of time.
A lot of experts say that you should never close a credit card, because your available credit percentage is calculated by the number of cards you have open. We already mentioned on this list that you should never have more than 30% of your open credit filled. So, how does having an open credit card help your score? Let’s pretend we have two credit cards. One has a $0 balance, so it is 100% free of debt. The other has a $4,000 credit limit, and you spent $2,000. So it has been filled by 50%. Take the average of the two: 100%+50%=150%. Divided in half to get the average of two cards is 75% free. If you keep both cards open, you will have a 25% credit utilization, but if you close the empty card, it goes back up to 50%. Make sense?
On the other hand, if you have tried to keep open credit cards in the past, and they became too much of a temptation for you, it may be a good idea to just close down the account, anyway, and just try to pay down the cards you have open. This is especially true if you have so many credit cards open, it’s hard for you to keep track. When you go to apply for another card in the future, this will never affect you negatively. Creditors will see that you were responsible and paid off your debts in full.
Since creditors are always judging you on your debt-to-income ratio, you should always let your creditors know if you have an increase in your income. Usually, credit card companies will ask you at least one a year to update them on your income, but you can volunteer that information whenever you want.
If you suddenly get a new job that makes double what you did before, this should help your DTI, and overall odds of getting accepted. Earning more money will not automatically mean you get a higher credit score, though. However, if you call your credit card company, you can let them know that you are making more money, and request a credit increase. If they give you the increase, this will free up your credit utilization. Once you have a lower percentage of debt on those cards, that is what will bring your score up.
25. Don’t Allow Car Sales People to Query For Loans
When you go to buy a new car, sales people will search their system to get you matched with financing. This is actually terrible for your credit score, because they will often go into their computer and put your information into multiple loans at once, meaning that there are a dozen “hard inquires” in your name happening all at once. If you are trying to get your “dream car”, you may also get rejected by a lot of banks. This can significantly drop your score up to 100 points in one day. Yikes.
Thankfully, you can prevent this from happening by getting your own auto financing prepared ahead of time. If you have gotten a letter in the mail offering auto financing from your bank, take a look at their invitation offer. Often, you can do a “soft inquiry” to see how much they are willing to offer, without it hurting your score. This will also help to give you a budget to get a better idea of what cars you can actually afford to buy. For example, if your bank gives you a $30,000 offer, you should stay away from getting a brand new Tesla, because you are likely to get rejected, or end up with a loan that is charging you an incredibly high percentage for a car loan.
For some people, the idea of creating a debt spreadsheet might cause a pit in your stomach from all of the anxiety. However, if you are really determined to lower your debt and raise your credit score, you should consider making a spreadsheet. You can do this for free using Google Sheets, or Microsoft Excel. In each column, you should have the name of your credit card company, online login info, the total amount you owe, interest rate, and monthly payment.
Once you see all of this information laid out in front of you on a spreadsheet, it will become a lot easier to identify which cards are your real troublemakers. Whether it’s a high annual fee, or an outrageous interest rate, you should be able to know right away which card to tackle first.
Many people decide to put their student loans under deferment as soon as their graduate from college, or if they decide to go back to school. This means that they are not making any payment towards their debt, but interest continues to accumulate. Technically, this is not as bad as being delinquent on an account, and it will not hurt your credit score. But it is not doing your score any favors, either.
Federal student loans allow you to make income-based repayments. They will look at your tax returns from the previous year, and give you a payment based on how much money you make. So, if you truly cannot afford a monthly payment, your “amount due” each month might drop to $0, but you will be in “repayment” status. So, if you pay any amount at all towards your debt each month, it will be higher than the monthly minimum, and it will help your score.
If you are still young and don’t have a lot of income or established credit history, you may be able to convince one of your friends or family members to help you by becoming a co-signer. Usually, the best choice is to ask your parents or grandparents. They love you, and want you to succeed in life. And if you default on your loan, they may not mind helping as much as your roommate or significant other.
Keep in mind that not every lender will give you the option to use a co-signer. You will have to ask ahead of time if you plan to use their assistance. If you find someone who is willing to let you use them as a co-signer, you truly need to show how grateful you are. This is a huge responsibility, because they are taking on the risk that you may lose your job and ability to pay for the loan. They will also be responsible to pay back the debt if you die. It should be taken very seriously.
18. If You Declared Bankruptcy, Make Sure It’s Reported Accurately
When you declare bankruptcy, most of your debt (except student loans) will be erased. However, this completely ruins your credit score, and it will stay on your report for 10 years. It may also prevent you from being accepted into certain apartment complexes, and so much more.
After the bankruptcy is over, you should still get your credit reports, to make sure that the dates have been reported accurately. The last thing you want is to have to wait longer than 10 years. You will have to contact the credit bureau directly, and fill out paperwork disputing anything that you claim is incorrect.
17. Dispute Anything Incorrect On Your Credit Report
As we just said in the last entry, there is always the possibility that something was reported incorrectly on your credit report, and it could be negatively affecting your score. Maybe you paid off a loan, and it still shows as an outstanding debt. Or, maybe someone has taken something out in your name, and you are a victim of identity theft. No matter what the issues may be, you are responsible for making sure it gets corrected.
If you see something wrong on your credit report, you need to contact the bureaus immediately. If you are a victim of identity theft, this may mean that they have to “freeze” your credit, which means that you will not be allowed to borrow anything else.
There are some companies out there who claim that they can “repair” your credit, even if you have been in a bankruptcy. If you get an offer from one of these companies, you need to avoid them at all cost, because they are likely a scam.
No matter what you do, there is no way to speed up the 10-year process of waiting for your bankruptcy to be removed from your credit report.
If you are trying to improve your credit score, it is probably because you eventually want to apply for a mortgage. Credit cards will ask you to update your income at least once a year, but they don’t bother to ask where you work. That all changes once you are prepping to buy a house. Keep in mind that most large loans and mortgage companies will ask to see your employment history. If you frequently change jobs or get fired, this is a huge red flag, and it it a sign that you may default on your loan. They want to see that you have stayed at the same job for at least two years in a row.
If you are self-employed, you will need to provide proof of income for at least three years. Mortgage companies will divide those three years into an average of what you make per year. Unfortunately, a lot of start-ups don’t make a profit in the first few years of running a business. So, unless you have a massively successful third year, you may actually end up waiting at least 5 years.
Even if you do not owe anything on your taxes, you should still do them every year, because you need to have a record of how much you made. Many lenders, mortgage companies, and apartment complexes will ask for your tax returns before they make a decision on your credit-worthiness. So if you never did you taxes, you may find yourself going to an accountant to file for previous years.
If you are self-employed, it is especially important for you to do your taxes. Many mortgage companies want to know that your business is stable, so they will judge you based on your gross income from the past three years. So it is vital for you to make sure you are keeping track of your income and expenses.
No matter how hard you try, it takes a long time to fix your credit score. Unless you win the lottery and have a huge windfall of money, you are going to have to steadily make payments on time and start having better spending habits.
Every situation is different from person-to-person, so we cannot make any promises as to how long it will take for you to fix your credit score. But there is no luck involved. It’s all numbers. So as long as you are doing the right things, it will eventually get better.
A credit score is just a number. That alone will not tell you where your specific issues are. Two people could have the same exact credit score, but when you look at their credit reports, it tells a very different story about where the problems are.
For example, you could have never declared bankruptcy before, and you are paying your bills on time every single month. But if you are always nearly maxed out on all of your credit cards and constantly hitting your limits, your score will continue to go down or remain stagnant. When you sign up for an account with Credit Sesame, they will help you pinpoint exactly what you are doing wrong to get a low score.
Earlier in this list, we mentioned creating debt spreadsheets to help you get more organized. Once you have these spreadsheets created, it’s time to make a game plan about how you are going to pay off your debt and repair your score. It’s also good to give yourself a timeline, because this will help give you peace of mind to know when things are bound to get better, and you can begin shopping for a mortgage.
For example, let’s assume you have an extra $500 to put towards your debt on month. Should you spend an extra $100 on 5 credit cards, or pay off an entire balance at once? That all depends on your credit utilization, the interest rates, and so much more. These decisions need to be calculated on a case-by-case basis. It may seem tedious to think about it, but trust that once it’s done, you will feel empowered to get your credit back on track.
If you were late on one of your monthly payments, you should call your credit card company right away to see if it can be forgiven. Some credit card companies have a policy that if it is two weeks late, they will forgive your first offense. But if you simply ignore the problem, they are more likely to report it to a credit bureau.
It is also possible for a credit card company to remove a late payment from your credit report, if you have otherwise been a good customer. After getting your report, call the company to see if there is anything they can do to help you.
If you know that you are going to be late with a credit card or loan payment, you should never ignore your issues and hope it will work out for the best. Getting a late payment on your credit report will lower your score. So if you know you are not going to be on time, immediately call your lender, and let them know that you are going to be late. Once they know that you intend to eventually make a payment, they are going to be far less likely to report you to debt collectors. Have a conversation with a customer service representative, and be honest with them about when you can pay.
In most cases, credit card companies have a policy where they will forgive a late payment, so long as it is your first offense. They may even forgive your first late fee. Just try not to take advantage of this. Typically, they will only let you do this once a year. (But policies vary for every company.) This should truly only happen in case of an emergency.
If you have recently lost your job, you may be panicking about how you are going to pay your bills. If you no longer have money to pay your bills on time, this will snowball into a bad credit score that may take years to recover. Thankfully, credit card companies understand that things happen, and we are only human. Many of the companies have a policy built in to help you if you lose your job.
Call your lenders, and let them know about your recent unemployment. They will either defer your payments for one to three months, or reduce your payment to just the interest during your time of need. However, this policy will vary from company to company, so be prepared for the possibility that one of them may still expect you to pay in full, and on time. However, if is truly worth the effort to call every single lender. This should lift the burden from your monthly payments significantly.
No matter how perfect you may be at managing your credit score, you cannot avoid waiting for maturity with your “credit age”. After borrowing money for 10 years or more, lenders take you more seriously as candidates for a mortgage. Of course, there is no way to do that, unless you keep an account open for 10 years or more. If you begin at age 18, you will not reach that 10-year benchmark until you are 28.
Credit age is the reason why some parents will put their teenagers on their credit card as a secondary user. This way, a 13-year-old could be ready to buy a house at age 23, instead of 28. With that being said, it is not impossible to buy a house with a younger credit age. Just try to keep an account open for several years in a row, instead of opening and closing accounts too quickly.
6. Prioritize Getting Rid of Debt Collectors and Pay-Day Loans First
One of the worst traps people can fall into is signing up for a pay-day-loan, also known as a “loan shark”. They are private companies who often force you to sign over collateral, and they charge you a huge amount of money in fees. People often end up paying back double what they owed.
Since these loan sharks can truly be a nightmare to deal with, make sure you focus on paying them off, first. Even if this does not count towards your credit score, you really need to get out of that situation. Same goes with debt collection agencies. However, keep in mind that some debt collectors will try to trick you into paying on old debt that has been forgiven on your credit report after 6 years. If you acknowledge a debt with a collection agency, you may find yourself responsible for a bill you never had to pay in the first place. So proceed with caution.
Whenever you open a new credit card, it gives you a fresh start with 100% free credit utilization. This will immediately boost your credit score about 10 points, and if you keep paying off your balance in full, it will get you on a jumpstart in the right direction.
However, keep in mind that if you get out a new credit card and immediately start spending on it, those extra points will jump right back down. A lot of people fall into the trap of taking out a new credit card right before the holidays, and nearly maxing it out. Then, they spend the whole year trying to pay it back. By the next year, they just get out a new card. Don’t do this! Try to only spend what you can afford to pay off right away, if you want to the most out of a new card.
When you are applying for a mortgage, banks like to see that you have a good “credit mix”. This means having a variety of different accounts like credit cards, personal loans, car loans, and student loans. If you only have credit cards, you may not be proving that you can handle different types of debt.
Unfortunately, that may mean getting out a new loan and putting yourself into debt in order to attain this credit mix. The best way to go about this is to get a loan for something you were saving up for, anyway. Instead of buying a car in cash, maybe get out auto financing, and use that savings to make automatic payments each month. Once you get approved for your mortgage, you can pay off your loans in full, if you want to.
3. Focus on Paying Your Highest Credit Utilization First
If you have a card that is always maxed out every month, chances are that once your interest comes through, your card will go over its limit. Having this consistently happen month after month is going to bring your score down every single time. So, if you have extra money to go towards your debt, make sure you pay it towards the card that is maxed out, and in the most danger of going over-limit.
If you have multiple cards over the limit, make sure you identify which ones have this issue, and put some extra money down on each of the cards to prevent this from happening. Once you have that under control, focus on paying down that high credit utilization card so that you are freeing up more space in available credit.
Every once in a while, you may get an offer in the mail for a credit card that has a 0% APR for the first year. If you get an offer like this, you should seriously consider accepting it, and get the new card. Once you have the card open, you can call your credit card company and request a balance transfer. Once you have the debt moved to a lower interest rate, this could help save you hundreds, or even thousands of dollars in the first year.
It will make it a lot easier for you to pay off your debt too, because your payment will be going towards the principle, rather than the interest. Sometimes, the new card may even have a larger available credit line. So with both things combined, it could bring up your score by 10 to 20 points relatively quickly. Some people will continue to do this technique year after year.
Last but not least, if you are struggling to pay back your debt, you should consider talking to a debt counselor. Remember that this is different than those scammy companies we mentioned earlier. A counselor is not someone who is promising to get rid of your debt. They are people who are willing to sit down with you and help you make a game plan as to how to get out of debt.
When you do a Google search for debt counselors, you almost immediately have results that will lead you to the wrong people. Make sure you are getting a real counselor. If you want to know more about the process, read this article from Forbes, and it will help you get on your way to getting your financial situation back on track.