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10 Ways To Have A Good Credit Score

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ways to have a good credit scoreWithout a good credit score, it’s hard these days to get the things you want in life.

You won’t be able to get great interest rates on a loan.

Without a good credit score, it’s hard these days to get the things you want in life.

You won’t be able to get great interest rates on a loan. You might have trouble getting approved for an apartment.

You might have trouble getting approved for an apartment.

And, you’ll probably have to plunk down a deposit to get your utilities hooked up.

Don’t fret if yours is abysmal.

Follow the strategies in this article, and soon you’ll have a score that you can be proud of.

It’s not going to happen overnight because despite what some companies might tell you, there’s no magic bullet.

You’re going to have to work at it day in and day out because raising your credit score isn’t a sprint—it’s a marathon.

But you’ll get there.

Then, you get to experience the rarefied view from the financial mountaintop reserved for the upper echelons of the FICO elite. That’s a great feeling!

Having an exceptional credit score is like having a superpower. You’ll be the beneficiary of rates that are out of this world. And, you’ll have your pick of rewards cards with unbelievable perks.

Don’t hire a high-priced company to boost your score because most of these companies are scammy. This article is the only thing you’ll need to get your numbers where you want them.

1. Know What Goes into Your Score

Your score is a three-digit number automatically generated by an algorithm using the information contained in your credit report. It’s designed to predict how likely it is that you’ll become seriously delinquent with your credit obligations in the 24 months after scoring.

You literally might have dozens of scores, because every lender has their own algorithms. However, each scoring model uses basically the same factors to arrive at its figures.

Companies use a formula to calculate your score. The information contained in your credit report dictates which method a credit-scoring company will use.

Each formula is tailor-made for a category of consumers who have similar credit profiles.

Becoming familiar with all the factors that make up your credit score is the first step towards boosting it. These include things like your mix of credit, how much you owe, and credit age.

There are many scoring algorithms, but the one that’s most widely used is FICO, which stands for the “Fair Isaac Corporation.” Over 90% of financial institutions use FICO to determine if someone is credit-worthy.

It’s the “Google” of scoring methodologies.

How Your Credit Score Is Calculated

FICO has never revealed its proprietary formula for arriving at credit scores. But it’s known to consist of five factors, and some factors weigh more heavily than others. For example, just two components—credit utilization ratios and payment history—make up more than 70% of your credit score.

Here are the factors with their relative weights:

  • PAYMENT HISTORY (35%): How often you missed payments or were late making payments.
  • AMOUNT OWED (30%): Although this is everything you owe to creditors, the most significant part of this percentage is revolving credit. This is credit that is automatically renewed as debts are paid off.
  • LENGTH OF CREDIT HISTORY (15%): How long has it been since you opened a particular account.
  • NEW CREDIT (10%): This includes recent requests for credit as well as how many new accounts you opened.
  • CREDIT MIX (10%): This is all the different types of credit you have, such as a mortgage, credit card accounts, personal loans, and an auto loan.

Utility payments and checking overdrafts don’t affect your credit score. Neither does personal or demographic information. That means that a credit scoring company like FICO won’t factor in your age, race, or how much you make at your job.

2. Pay Your Bills on Time

This includes everything that can end up in collections, like library fines and unpaid utility bills. Lenders use past history to predict how well you’re going to pay your bills in the future.

If you’ve been late with a credit account, bring it up to date ASAP. Although a late payment remains on your credit history for seven years, its negative impact diminishes over time.

To never forget to pay a bill again, schedule automatic payments and use calendar reminders.

3. Keep Your Credit Balances Low

Your credit balances should be no more than 30% of your combined credit card limits.

This 30% number is what’s called your credit utilization ratio, and it refers to your revolving credit accounts. Credit utilization ratio is what you owe on a card divided by the amount of your credit limit.

Factor in all your credit accounts. For example, if you owe $15,000 on all your credit cards and your combined credit limit is $20,000, your credit utilization ratio is 75%.

Most companies report your balance to the credit bureaus on the day your statement closes. So if this is the day your company reports your data, make sure your ratio isn’t over 30% because the credit utilization ratio that factors into your credit score is the one you have on this day.

If a company sends information to the credit bureaus, it usually will do so at the end of your billing cycle. But some companies send all customer data on the same day each month, regardless of when the billing cycle ends.

Your company might not report customer data to all three credit bureaus. In fact, it might not hand over this information to any of them.

It could take years for your credit score to rebound after late payments or bankruptcy. However, after paying off your credit card balances, you’ll quickly see your credit score improve.

If you need more tips and tricks on how to pay off crippling credit card debt, read this article.

4. Don’t Cancel Old Cards

Having a credit card with a zero balance always helps your credit score, so if at all possible, you should keep all credit card accounts open.

When you close out a credit card account, you increase your credit utilization ratio. But closing one account to open another with better rates won’t affect your credit score. That’s because your credit utilization ratio stays the same.

You can also close out a card if you’re able to pay off the balances on your remaining cards so that your credit utilization ratio isn’t affected. But even if you cannot pay off the balances on your remaining cards, there are two conditions under which it makes sense to close out a credit account:

Follow these steps if you need to break up with your credit card company:

  • Jot down the customer service number and the address of your credit card company.
  • Try not to lose any accumulated rewards points.
  • Pay the balance in full.
  • Call the customer service agent and doublecheck that your balance is zero.
  • Send a letter and request written confirmation that the account was closed at your request.
  • Check your credit report to make sure that the account is closed.
  • Once you’re sure your account has been closed, destroy your card in a way that makes your data completely unrecoverable by would-be identity thieves.

To make your card unusable, run a strong magnet down the length of the magnetic strip. If your card has a RIFD chip, cut it down the middle.

Lastly, cut each set of four numbers on your card into six pieces.

A shredder can also do the job. But make sure yours can handle credit cards and has a cross-cutting function. Cross-cutting is essential when you’re handling sensitive material, and cuts into small pieces rather than long strips.

Another way to deter digital bandits is to put each piece of your card in a different trash receptacle after cutting your card to shreds. This makes it harder to piece together your account number.

If you’re a victim of identity theft, find out what to do here.

Credit Age

Part of your credit score is how long you’ve had a credit card account. This is what’s known as “credit age” and accounts for 15% of your credit score. This also means that closing an old account will have more of a negative impact than closing a new one.

Also, if you’re a young whippersnapper with not much of a credit history , closing an account will have more of a negative impact than if a 50 year old man with an extensive history closed one.

5. Limit Applications for New Credit

Every time you apply for a new piece of plastic, your lender runs a “hard inquiry” of your credit information. Too many hard inquiries erode your score because potential lenders see this as a sign that you’re heading down the path of out-of-control credit card debt.

Request are classified as either “hard inquiries” or “soft inquiries.” Only hard inquiries affect your credit score.

Soft inquiries are when your credit isn’t being reviewed by a lender. This includes times when you’re checking your own credit. They also include checks made by businesses to offer you goods and services like promotional offers. Lastly, they include queries done by companies with whom you already have an account.

According to the statistics, large numbers of inquiries mean higher risk. People who have six or more on their reports are eight times more likely to go bankrupt than those who have none.

That’s why you should limit your requests for credit to a reasonable amount and not go overboard with them.

6. Check Your Credit Report

At the bare minimum, you should check your credit report once a year. Doing so will make sure you’re in good financial health when applying for new credit. And if you’re still reeling from past credit card woes, checking your report provides the necessary feedback to keep you on track.

Monitoring your credit should be integrated into your financial routines. You already balance your checkbook, review receipts, and carefully budget.

Add checking your credit report regularly to that mix, and you’ll keep your fiscal house in order. If you become an identity theft victim, periodically checking your credit report will let you know sooner rather than later.

But checking to see if someone stole your identity isn’t the only reason to look at your report. You should also be checking for any errors made by the credit bureaus.

If you do find something wrong, your credit report comes with instructions for submitting disputes including a toll-free telephone number, internet address, and mailing address. It takes a credit reporting agency about 30 days to investigate a disputed item.

7. Pay More Than the Monthly Minimum

With a credit card, you only have to pay off a small part of your balance each month. This allows you to spend your money on other things.

If you do this a lot, you’ll end up paying a fortune in finance charges. By increasing what you pay beyond the monthly minimum, you’ll save hundreds, if not thousands of dollars in finance charges.

For example, if you have a $5,000 balance at 17% APR, the minimum payment will be $120.83. It will take you 271 months to eradicate your debt.

In that time, you will pay $ 6,524.22 in interest. If you increased your minimum payment to $300, it would take you only 20 months to eradicate your debt. And, you’ll end up paying a lot less, which would be $744.09 in interest.

8. Request an Increase in Your Credit Limit

By asking for and getting a credit limit increase, you’ll lower your credit utilization ratio and boost your credit score in the process. Don’t worry that you’ll be turned down because most people who ask for an increase get one.

For example, you have a balance of $7,500 on a card with a $15,000 limit. Increasing the amount of your credit from $15,000 to $20,000 would reduce your credit utilization ratio from 50% to 37.5%.

Asking for an increase could result in a hard inquiry. But this will only lower your credit score in the short term. Long term, it’ll boost it.

But with more room on your card, you’ll have to resist the temptation to spend more.

9. Refinance High-Interest Cards

If you’re only paying the bare minimum on your cards, it’ll take you an eternity to pay down your debt. One solution is to refinance your high-interest credit cards with a debt consolidation loan.

This type of loan combines all of your credit card debt, so you all you have to do is to make one easy payment. By refinancing high-interest rate credit cards with a loan that has a lower interest rate, you’ll pay off your debt faster. You’ll also save money and raise your credit score.

And, you’ll cut down your loan repayment time to mere months instead of years by paying more of your principal and less of your interest.

A debt consolidation loan lowers your credit card utilization ratio, too, which increases your credit score. But, borrowing to pay off your credit cards only makes sense if you’re charged a lower rate than what your credit card companies were charging you.

Before applying for a one, look at your debt to see how much money you’ll need to borrow. Then, doublecheck to see what interest rate you’re paying on your cards.

There are lots of online companies offering debt consolidation services. Look at the ones with the best reviews and rates. Then, choose one.

Most of these online lenders will run a soft inquiry on your credit history, which won’t affect your credit score. Most banks, on the other hand, run a hard inquiry when you ask to borrow money.

Banks and Credit Unions

However, it still might make sense to get a debt consolidation loan from a local bank or credit union you know and trust. The problem with online debt consolidation companies is that you don’t know them like you know your local financial institution.

Credit unions, in particular, have competitive rates, and they’re not as rigid when it comes to giving out money as banks are. Credit unions also have a “home town” feel to them that makes doing business with them a pleasure.

They’ll factor in the relationship you’ve established with them when they decide whether to give you money, especially if it’s a long-standing one.

0% Balance Transfer Cards

You can also use a 0% balance transfer card to pay down your credit card debt. This type of card charges zero interest during a 12-18 month promotional period. You can transfer all your other credit card balances over to it.

You’ll have to pay a 3% transfer fee, and some cards charge a yearly fee. Having to pay a yearly fee could wipe out any savings you’ve accrued by using a zero-interest card.

Use the promotional rate opportunity to pay off your balance because afterward, you’ll be paying regular credit card interest. Which, of course, can be exorbitant.

Peer to Peer Loans

You can also try a peer-to-peer loan to consolidate high-interest debt. This is where an online platform connects those who want to borrow with investors who have money to lend.

Borrowers like them because they can often get a lower interest rate than they can get from other online sources.

10. Diversify Your Mix

If you want not merely a good but an excellent credit score, you’re going to have to diversify your credit a little. Now, if you don’t want to do this, relax.

This factor is the least important out of all the elements that make up your score. But if you’ve been working on bumping a 775 to an 825 without success, give this gambit a try.

If you think your credit mix needs a little diversifying, consider taking out a loan you know you can pay off. For example, if you don’t have an automobile loan in your credit mix, apply for one.

Do it even if you have enough cash to buy a car outright.

Final Words

In this article, I outlined a bunch of ways to boost your credit card score that are relatively straightforward.

There’s no magical formula to boosting your score. Nor will you do it overnight. But apply the strategies consistently, and over time, you’ll have the credit card score you always dreamed of.

For a frugal warrior such as yourself, a high credit score is a badge of honor.

There are more ways to raise an abysmal score than the ones in this article. But these are good for starters. A good credit score is indispensable in this day and age, and not having one makes it difficult to get the things that make life easier.

If you hire a credit card company to boost your credit scores, just be careful. Most of the companies don’t do anything more than the tips I’ve already given you. So you probably should save yourself a buck or two and do what I recommend.

What are your favorite ways to boost your score? Let me know in the comments!

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