7 Steps to Improve Your Credit Score

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Credit Repair SignWhether you think we’re out of the recession or not (I would bet “no” based on the responses last week), it’s always important to play a little personal finance defense. Today, the topic is on credit scores and how to improve your score by taking a few small steps.

These aren’t steps you can use to boost your score 100 points overnight… those don’t exist. These are simply smart moves you can make, over and over again, that will ensure your score will be as accurate and as high as possible. And if anyone says they can boost your score 100 overnight, chances are it’s a scam (unless you have some egregious errors on your report!).

Review Your Credit Report

The easiest way to improve your score is to ensure your credit score is accurately calculated. Each year you can request your credit report for free via, a website setup by the government to help you get your reports. By reviewing your report, you can get anything incorrect, positive or negative, removed from your report. Since your report and score affect more than your ability to get loans, it’s always important to keep it correct.

Dispute “Errors & Inaccuracies”

This is a secret tactic of many “credit card repair” services – they dispute everything negative on your account. The credit report industry works on voluntary reporting by creditors. Credit card companies don’t always report every late payment because it’s simply too much work for very little return. They usually only report it if it’s 30 or 60 days late.

What this also means is that sometimes they won’t respond whenever the bureau requests more information. If you dispute an error, the bureau has to go to the creditor to have them confirm the information. Sometimes they confirm it, sometimes they don’t. Sometimes they no longer exist. If they can’t confirm it, it must be removed from your report.

Focus on Making Timely Payments

35% of your credit score depends on your payment history, the largest factor of the five listed by Fair Isaac. Creditors don’t care if you have debt as long as you’re making timely payments! That’s why it’s so important to ensure that you make your payments early or on-time.

So many times we miss making an on-time payment for stupid reasons. We forget to put the check in the mail. We forget to hit confirm on the billpay screen. We forget because we’re on vacation. Set up a system so that you will never miss a payment because you forgot. I setup electronic billing so I am sent an email each month reminding me to check my statement. I also set a reminder in my phone to remind me when my bill is usually do, since the date itself drifts between a few days. Finally, once a month, when I do a financial check in, I poke my head into each of my accounts when I review the transactions for errors.

Pay Down Debt

The second largest factor for your credit score is how much you owe (30% of your score). The more you owe, the lower your score will be. You would do the same thing if you set up a credit score right? Someone who owes $10,000 in debt is riskier than someone who owes only $100, all else being equal. So a great way to increase your credit score is to pay down as much debt as you can.

Credit utilization is often mentioned in any discussion of debt because that’s the metric most understood. Credit utilization is simply the percentage of your credit limit you are currently using. If you have $1,000 in debt but a total credit limit of $10,000, then you’re utilizing 10% of your debt. The lower this number is, the better.

Stop Opening Credit Card Accounts

Want a free t-shirt? How about a frisbee? Or a blender? You’re dinging your credit score each time you apply for a new credit card. Lenders see it as a big red flag is someone is applying for a lot of credit cards, they think the applicant must really need all of this money otherwise they wouldn’t be applying for the cards!

In addition to credit cards, remember that any request for a loan will fall in this category. The application will result in a “hard inquiry,” which is an inquiry made by a creditor looking to make a decision. On the other side is a “soft inquiry,” which is an inquiry made by a creditor looking for information. If you request your own score, that’s a soft inquiry. When Citi requests it after you apply for a card, it’s a hard inquiry.

Don’t Close Credit Card Accounts

If you don’t use a card, stick it in your desk drawer. Don’t cancel it. A lot of times we feel tempted to cancel and cut up a credit card we don’t use because we don’t want to forget we have it. We don’t want it stolen or we simply want to be rid of it because we paid down the debt. Resist the temptation because when you close the credit card, you are hurt by the credit utilization number. Since the credit limit it taken from your total, the percentage of your total credit immediately goes up. It’s a bit of a moral hazard but that’s how the system works.

Don’t Pay For Credit Score Monitoring

A lot of people use services like MyFICO or other similar services that offer free FICO credit scores to monitor their credit score. I think it’s a mistake, if you are in debt, to continue to pay for the services after the free credit score. You should be taking that money and paying down your debt. Looking at your score won’t improve it, paying down debt will.

If you want to monitor your score, it’s best to use a free service like Credit Karma. They give you your TransUnion credit score, which isn’t technically your FICO score, but it’s still a credit score and you don’t have to pay.

Have I missed a good step to improve your credit score?

(Photo: thetruthabout)

{ 12 comments, please add your thoughts now! }

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12 Responses to “7 Steps to Improve Your Credit Score”

  1. It’s really important to dispute errors on your credit card. These not only influence your credit score, they can also cost you money. If there’s something on your statement that looks funny, it might be that someone has stolen your info. Or, if there is an unjustified late payment, a lot of times your company will be willing to reverse the damage. If at first you don’t succeed, ask for someone higher up.

  2. I disputed one thing on my credit report, although it wasn’t technically wrong (I was completely honest about the situation).

    When I moved several years ago, one of my student loan bills didn’t get sent to my new address. This particular lender didn’t have automated payments, so I got a small bill every quarter (it was a pretty small loan).

    Since I was busy with getting settled into the new place, I didn’t realize that I never got the bill … until 3 months later, when I got the new bill, with a balance brought forward.

    They hadn’t bothered to send any communication in the interim to let me know that my payment was late. They did, however, take the time to report it to the credit bureaus.

    I was not particularly pleased with them. I paid off the entire balance and said good riddance to that organization. Erg.


  3. Jill says:

    Should also point out that using your available credit is necessary to continue to boost your score. All zero balances all the time don’t do too much – you have to show you can take out credit AND pay it off.

  4. Actually, in some instances, you can close out an account completely without it having much of an effect on the overall credit score. In the case of American Express, specifically, with all of the credit line reductions I have heard from several people who were cut back to $500 limits. If that is the case, and the person has other trade lines with significantly higher limits (as well as zero or low balances), then closing the account will not do much harm to the utilization ratio.

    Prpbably the one thing that I would reiterate to others more than any other point you made, Jim is that anyone promising to perform magic overnight is a scammer and should be avoided.

  5. John says:

    you’re site is very informative and I’ve learned a lot. But during this past year, the articles are starting to repeat the same stuff. It would be great if you could provide new material.

  6. Alan says:

    @ Kosmo

    The same exact thing happened to me. I did a student loan consolidation and was under the impression that everything was transferred. So i did my thing and paid off the consolidated balance…it didn’t help that i had a loan from ACS and AES and their envelopes look exactly alike. So I assumed that i was paying it off on time. Then one day I decide to just open the letter up just to see it…that’s when i found that a $5k loan with ACS was left out of the consolidation!!! and it was over 60 days late…I was lucky since that letter that i opened was the final letter before they send it to collections.

    Now they have my email, phone, and fax numbers…they didn’t bother to use ANY other sources of communication…i was so pissed off and told them the story…aside from a “note” in my file the nasty smudge is still in my credit file 🙁

  7. zapeta says:

    Thanks for mentioning Credit Karma again. I haven’t checked my score in several months but everything appears to be ok.

    I’ll have to look but its probably time to get my credit report again. I try to get one of the free reports every 4 months to make sure there aren’t any unexpected changes.

  8. Ann-Marie says:

    Checking your credit report regularly and disputing any inaccuracies are the most important things you can do to maintain good credit. You might be surprised how many mistakes creditors and credit bureaus make and how much these mistakes can affect your credit score.

    You can dispute information on your Experian credit report online at You’ll get a free credit report and score so you can see what’s listed in your credit history. And if there’s any inaccurate information, simply click a button and fill out a short form – voila! The credit bureau then has 30 days to “investigate” your dispute, at which point is must correct the mistake or leave it be if the information is in fact accurate.

  9. daemondust says:

    I see all these ‘how to improve your credit score’ stories everywhere, but I’m to the point where the most negative thing on my report is that I’m too young. Not directly, of course, because ageism isn’t legal here. But because the oldest account is still pretty young even though I got it when I was 18. I have a good mix of credit types, two store cards, three major credit cards, student loans, and a car loan, so the only thing I can do to improve is keep doing what I’m doing and get older.

  10. Dan says:

    daemondust is correct it talking about getting older. One of the items used to make the FICO score is the length of time of the longest open account. Unless you have a business attached to your personal credit, it is almost impossible to get above 800 until one of your accounts reaches 20yrs.

    keeping zero balances is smart however a card that is not used every six months does not go into your score.

    changing your payment pattern to pay by statement(closing date) instead of due date can give a few points. (I didn’t understand the explanation)

    changing your payment pattern from paying once a month to making at least two payments a month (i.e. pay half your mortgage every 2 weeks) gives a few points.

    cancel preapproved credit offers at the 4th credit bureau can give a few points.

    • daemondust says:

      I think the reason they say paying off credit cards before the statement closes is that it shows as still being used, but the balance owed on it is $0. If I charge $1000 a month on a credit card, wait for the bill, and pay it all off, I still have a statement balance of $1000 that gets passed to the credit bureaus. It looks exactly the same as carrying a $1000 balance and only paying the interest.

      • Jim says:

        That is 100% correct. You want the statement to close showing a balance, then you pay it off in full before the due date and pay no interest.

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