Whether you like it or not, your credit score affects your daily life. Everything from getting approved for a loan to getting a job can be dependent upon having a good credit score. This is why it’s important to learn how to boost your credit score and keep it there.
If you are a fan of Dave Ramsey, you know his stance on credit scores. If you’re not, I’ll sum it up quickly: essentially, Dave thinks you should pay for everything in cash. When you do this, your credit score will disappear, since you no longer have any accounts for it to base your “credit worthiness” off of.
While Dave Ramsey doesn’t approve of worrying about a credit score, there are still a lot of reasons to do so. Unless you can pay cash for everything – and I mean everything, like a house – you’re going to need to have a good credit score.
Until you can pay for everything in cash, it’s important to know your credit score and pay attention to it. Having a good credit score can also help you save money in the long run as well.
Credit scores are also important in determining your interest rates on loans, mortgages, cars and credit cards. If your credit score is horrible, you will not be able to get a low interest rate. Which in turn means that you’ll be paying more for the same products as people with great credit scores.
Having a great credit score means saving money in the long run. Here are the most important tips to learn how to boost your credit score.
Why Do I Need a Good Credit Score?
Having a good credit score is unfortunately important in today’s world, whether we (and Dave Ramsey) like it or not. Just look at all the items throughout your life that your credit score can affect:
- Your ability to get a job since employers now check credit scores
- You ability to get a loan
- Your ability to get a good interest rate on that loan
- Where you buy a house, your mortgage rate and how big of a house you can buy
- Your relationships
- If you can rent or lease an apartment or car
- The cost of your car or home insurance
- If you have to put down a deposit when opening utility accounts
- Starting a business
How to Get Your Credit Score
Luckily, you can get your credit score for free at Credit Sesame. Just answer some basic questions, create an account and login to check your score.
Credit Sesame also helps you to analyze your credit score and tells you how you can improve it. I like it because it’s feedback that’s tailored to your specific situation, which takes out a lot of the guesswork. They also provide additional services, like credit monitoring to make sure that there’s nothing fishy going on with your credit.
Another good monitoring option is Credit Karma. While I haven’t tried it myself, I’ve heard good things.
Easy ways to improve credit
Everyone wants to know the fastest way to fix a credit score, so let’s dig in, shall we? There are several factors that make up your credit score:
- Payment History (35% of credit score)
- Credit Usage (or, Credit Utilization Ratio) (30% of credit score)
- Credit Age (15% of credit score)
- Account Mix (10% of credit score)
- Credit Inquiries (10% of credit score)
I’ll go into detail about each so that you understand how each affects your credit score, and how heavily it weighs on determining your score. But first, grab a copy of your credit report and credit score and we’ll get into how to boost your credit score.
Start by Reviewing Your Credit Report for Mistakes
Begin by getting a free copy of your credit report at Annual Credit Report. You can do this once a year for free. It will not give your credit score, but you can review it for discrepancies in your credit history.
If you find any accounts that you didn’t open or that are incorrect, you need to address them immediately. Start by contacting the credit bureau that’s showing the account and asked to have it removed.
I suggest sending a letter via certified mail with copies of the credit report and any documentation showing proof of inconsistencies. Ask them to investigate the account in question. They have 30 days from receiving the letter to review the issue, and then remove it.
Contact Creditors About Recent Late Fees
If you have recent late fees, you can kindly call and ask your creditor for a pass. See if you can get them to drop the late fee. If so, it should remove the late payment on your credit report. Otherwise, those late payment notifications will stay until the loan is paid off and closed for good.
Payment history makes up a whopping 35% of your credit score. Set reminders to pay your bills on time. Print and mark up a calendar. Whatever it takes, make sure that you’re paying those bills on time every month.
Want to know how to increase credit score immediately? Start with on-time payments. Current on-time payments will impact your score more than old late payments. Get on a schedule and pay those bills first.
Not only will this up your credit score, but you’ll sleep better at night knowing those payments are taken care of.
If you aren’t making enough to cover your bills, check out this article on 11 simple ways to save money on a tight budget.
Steps on How to Boost Your Credit Score
Pay Down Your Credit Cards or Loans
One large factor in your credit score is your credit utilization. It makes up 30% of your credit score.
This means that if you have a credit card with a $10,000 limit, and a $5,000 balance, you’re at a 50% credit utilization rate. Which is not good.
The lower your credit utilization rate, the better. You want it below 30%, but lower than 10% will get you the best rates from lenders.
Do not go out and open additional credit cards to create a smaller credit utilization percentage. Chances are you’ll end up using the card and gaining more debt, and also end up lowering your credit score.
The best way to drop your credit utilization score is – you guessed it – make a payment on your credit card. Knock off anything you can in order to get that percentage to drop. This will have a much bigger impact on your credit score than getting a late payment mark removed.
Consider picking up a temporary side hustle to make some extra cash to get those credit cards paid down. If you need some inspiration, here’s a list of online side hustles you can start this weekend.
Mix Your Accounts Up
Creditors and lenders want to see a variety of accounts, including credit cards, home loans, student loans, car loans, and other types of loans. Having a mix can be beneficial to your credit score.
Luckily, this only makes up 10% of your overall credit score, so don’t run out and grab an unnecessary loan just to give yourself variety. It’s not enough to bump your credit quite that much, so don’t worry about it if you don’t have a variety in your account types.
Keep Your Accounts Open
I know this sound contradictory, but you want old accounts. If you pay off a credit card, keep it open. The older, the better.
Credit age is based on an average age of your accounts. You want to try and have an average over five years if possible. So keep those accounts open – but cut up those cards!
Credit age makes up 15% of your credit score, and it’s a relatively easy task to accomplish. It doesn’t hurt if you choose to close a very recently opened card, but definitely keep any of the older accounts open.
Having 12 credit cards isn’t going to help either. Lenders want to see a variety, not quantity. This is my lowest rating on Credit Sesame, since I only have a couple of credit cards and a mortgage. And I’m totally fine with that! It’s worth it to drop the student loan and car payments we had earlier this year.
Keep the Number of Credit Inquiries Down
Every time you apply for a new loan, credit card, or mortgage, it’s a credit inquiry. You want to keep it down to only two per year, if possible.
Credit inquiries have a 10% impact on your credit score, so don’t apply for every store credit card you’re offered just to save 30% on your purchase that day.
This also means that if you don’t have a lot of credit accounts open, don’t open too many too rapidly. Spacing them out and opening only what you really need will boost your credit score much more. Opening too many at once will lower your score and it’ll take a year to fall off your report.
How long does it take for your credit score to update?
Depending upon the changes you make and how much they affect your score, you can start to see improvement in your score within 30 days. Lenders generally report to the credit bureaus once a month, so any changes will appear monthly.
Remember, fixing your credit is going to take a little time. So the sooner you start, the better!
How fast can you raise your credit score?
The burning question on everyone’s mind: how fast can you raise your credit score? Your specific situation and the changes you’ve made will dictate how fast you can raise your score.
But weary of any companies that promise fast results. Often, they can backfire and actually cause a lower score.
If you want tips to boost credit score quickly, your best bets are paying on time and lowering your credit utilization. Those items will give you the most bang for your buck. The others might take a bit, since they are based on time.
Remember, the key to boosting your credit is consistency. Being consistent with on-time payments, your credit utilization ratio, and keeping older accounts open will be the fastest way to fix your credit score.
Having a great credit score affects so much more than being able to get a loan at a low interest rate. It can affect everything from finding a job to how you raise your kids.
It’s important to not only check your credit score through a service like Credit Sesame, but to also keep checking it. You’ll want to pay attention to any changes that appear and address them as soon as possible to keep your credit score up.
Will Being Debt Free Affect Your Credit Score?
A debt free credit score could possibly be higher because your credit utilization will be zero. However, if you don’t have a good mix of types of credit, haven’t had the accounts open long, or have opened too many too recently, your score could possibly be lower than someone with debt.
While you’re not going to find Dave Ramsey free credit score services any time soon, understanding the factors that build a credit score are important. Once you’re debt free and are able to pay cash for literally everything in your life, that score will matter whether you like it or not.
Have you done any adjustments to raise your credit score? How long did it take to see a change? Let me know in the comments!