How to Increase Your Credit Score
There are 5 factors that affect your credit score:
- Payment history
- Credit utilization (how much of your revolving debt you are using)
- Average age of accounts
- Credit mix
- Inquiries
What are ways to increase your credit score?
- Pay your monthly bills on time.
- Payment history is 35% of your credit score
- Making late payments can drastically reduce your credit score
- If you have old accounts with late payments, work with your creditor to bring those accounts to current and start making on time payments
- Keep revolving debt balances to a minimum
- Credit utilization is 30% of your credit score
- The rule of thumb is to keep credit card and line of credit balances under 30% of the total amount of credit limits
- To calculate your utilization percentage, simple add up all of your revolving debt balances and divide them by your total amount of credit limits
- A total debt balance of $5,000 divided by at total limit of $10,000 is a 50% utilization rate
- Having a high utilization percentage will reduce your credit score even if the other factors are positive
- If you have high balances start a debt payoff plan to reduce your balances, work with your creditors to increase your limits, or open new revolving debt to increase your limit
- Dispute errors on your credit report.
- Errors on your credit report can reduce your credit score
- Review all 3 credit reports and dispute any errors such as payments reported incorrectly or old negative information that should no longer be reporting
- If you are a victim of identity theft dispute any accounts opened without your authorization
- Have a mix of credit
- Creditors want to see that you are using revolving (ex. credit cards) and installment (ex. loans) types of credit
- If you have only installment loans open a credit card or line of credit to add a revolving debt to the mix
- If you have only credit cards, open an installment loan to add to the mix
- Keep credit cards open
- If you no longer want to use a credit card, simply stop using the card and put it away in a secure location or cut it up
- Closing a credit card account will result in you losing the history from that account and reduce your average age of accounts
- Use a credit builder account
- If you have a low credit score or no credit at all look into credit builder options such as a secured credit card or Self.inc.
- These accounts are designed to help individuals build credit from scratch or to rebuild credit
- A secured credit card is backed by a cash deposit you provide when opening the account
- Make sure when using a secured credit card you are paying on time and only spending what your can afford to pay off monthly
- Self.inc is a savings account that reports to the credit bureaus as an installment payment
- Instead of paying off a loan balance your monthly payments are going into a cd saving account
- Self.inc offers affordable monthly payments as low as $25 a month for a 24 month term
Family Houston offers free financial coaching to assist with creating action plans to increase your credit score. We offer a free review of your Transunion credit report and your Transunion FICO score. Contact Family Houston today. 713-861-4849.