5 Steps To Raising Your Credit Score
By Katie Oelker - Financial Coach
Last updated 6/25/2020
Some people have a love-hate relationship with credit. Experts disagree on the importance of using credit and having a positive credit score and most either love it, or hate it.
Regardless of your thoughts on credit, I have never met or heard of anyone who didn’t need to access credit at one point or another in their life.
It’s important to establish a healthy credit score before you actually need credit, as typically it can take some time to get your credit to a point that will qualify you for the very best interest rates.
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If you’re looking to take out a car loan or buy a home, it’s very unlikely you will be able to do so without a credit score. And having the highest one possible will save you the most amount of money in the long run.
So how do you go about establishing a credit score and building it to an excellent status? There are two main areas you will want to focus on:
a) Utilizing the credit you already have access to
b) Opening up and building new lines of credit
5 Ways You Can Raise Your Credit Score
1. Know Where Your Score Came From
There’s a quote I love by C.S. Lewis that states, “You can’t go back and change the beginning but you can start where you are and change the ending”
No one can go back and change the financial decisions they’ve made in the past and how they have affected their current financial situation.
However, everyone can examine where they are and make changes to positively affect the outcome moving forward. It’s easy to check your credit score online so you can track your credit score as you are working to raise it.
Did you know that 90% of lenders use FICO credit scores for underwriting decisions rather than the free scores you get from Credit Karma? Learn more.
Although this isn’t a step that you take that automatically raises your score, having this awareness will help motivate you to keep moving forward as you build your score.
2. Assess What You Already Have
One of the keys to having a high credit score is successfully utilizing credit you already have access to. Look through your accounts to see what types of cards, credit cards and loans you currently have.
Definitely keep all lines of credit open, especially the ones that have been open the longest as they have much more influence on your score than recently opened ones. If you have a card that has been opened for a long time but not used, throw a small purchase on there to make sure it’s still utilized and doesn't get closed by the credit card company.
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Also, make a call to see if you can raise your credit limit on any cards you already have. Even if you don’t plan on utilizing the credit, it helps raise your score by lowering your debt-to-credit ratio (also known as credit utilization ratio).
3. Utilize Your Loved Ones
If you know your partner or family has a high credit score, see if they will co-sign on a loan with you or add them to one of your cards as an authorized user.
As long as you are responsible for your debt and make sure to make payments on time, this is an option that can help you get access to credit that you wouldn’t normally have otherwise and build your score in the meantime.
4. Be A Responsible User Of Credit
It goes without saying, but paying your bills on time is one of the fastest ways to prove that you are a reliable credit user and thus, raise your score.
Understanding FICO Scores
Did you know lenders pull different FICO scores when you apply for a car loan vs a home loan? And yet another for credit cards? And the scores can vary (a LOT!) Learn more about your FICO credit scores in this guide.
Make sure you pay at least the minimums on your cards (paying off in full each month is even better!) and don’t miss a payment.
I recommend setting up an automatic minimum payment each month so you’re always sure your card got paid even if you forget to log in and pay the bill.
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5. Open New Lines Of Credit Carefully
As someone who has participated in the Choose FI’s recommended Chase Guantlet program I am a huge lover of travel rewards. Between my husband and I we have opened 8 credit cards in the past 15 months and both of our credit scores have increased by doing this.
That being said, opening new credit cards to take advantage of travel reward offers or build your score is not an easy feat.
It takes an incredible amount of organization to be able to keep the cards straight, including make sure you’re paying the cards on time, tracking how much you’ve spent, how close you are to hitting the bonus, downgrading before the next annual fee hits (if you won’t be using after the initial bonus period), etc.
If you’re looking to increase your credit by taking on more credit, whether through a personal loan, credit card, line of credit, student loan, or car loan, do so carefully. If you take on more credit to improve your score but then you spend too much and can’t afford the payments, you’re going to have the opposite effect on your score.
And if you’re completely new to credit, you can check out my post on 6 Steps to Establishing a Positive Credit Score for a guide on how to get started.
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In order to build a high credit score, you must be willing to play the game of obtaining and using credit responsibly in the first place.
It’s important that you take action now in order to have the score you want when the time comes to put your score to work.
Katie Oelker is a Financial Coach and Personal Finance Writer, helping her clients bring awareness and clarity to their finances so they can achieve their financial goals. She has been featured in Business Insider and MindBodyGreen and also writes for her own site at katieoelker.com. As a former Business Education Teacher and Financial Adviser, Katie is a longtime personal finance junkie. When not working she’s chasing around her two daughters or waiting until summer when she can finally enjoy the only season that keeps her in Minnesota. You can reach Katie on Instagram @katieoelker or on Twitter @katie_m_oelker.
*Study found 48% of professional credit repair clients who stuck with their service for 6+ months saw an average of 100+ points to their credit score. Source.
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