3 Ways to Improve Your Credit Score

May 14, 2014 45 Comments | Disclosure

how to improve your credit score

Want to Know How to Raise Your Credit Score?

I wanted to know too!  Over the past 6 months I’ve been researching the best ways to raise my credit score.  4 years ago my husband lost his job.   Thank goodness I started to listen to and follow the steps Dave Ramsey recommends.  Instead of spending our tax refund like we always had in the past, we saved it.  Just a few weeks after I tucked the money safely away in our savings account, my husband was laid off.  At that time I was expecting baby #7 (surprise!).  Needless to say, the next 18 months were rough.

yoder family ny times

image credit

You can read more than you ever wanted to know about me and my family’s situation in this New York Times Magazine article that Monica and I were featured in last year.  But needless to say, after the first 18 months into unemployment, our credit was shot.  In fact, we nearly lost our home.  If it weren’t for some wonderful friends, and the blessing of this blog (you know that this blog is free for you to use, but we still make an income from it), we were able to keep our home.

Fast forward to NOW!  We have a stable income again, in fact, we’ve paid off all the remaining credit card debt, and we’ve been able to start saving!  But our credit scores were still lower than they used to be.  You can imagine that we’re busting at the seams as my family of 9 is starting to grow (not in numbers, but in size… these kids are getting bigger and inviting friends over!).  We’ve been needing to move into something a little more spacious for some time (this is our fabulous real estate agent by the way).

Want to know what I’ve learned? (disclosure: I’m no financial expert, I’m just sharing what worked for me these past few months)

3 Easy Ways to Raise Your Credit Score

credit sesame app

1 – Raise Awareness

Last fall I signed up for Credit Sesame.  I love it!  Not only do I get to see my credit score for FREE every single month, Credit Sesame also offers a FREE credit monitoring service.  It’s a great way to keep an eye on your financial situation… I especially love their app!  Right at my finger tips I can get a quick snapshot of how things are going for us (as you can see in the screenshot I took of the app on my phone  —>).

  • 100% free personal finance credit and debt management tool
  • no credit card required or trial period (LOVE this!)
  • gives an instant view of your credit, including Experian credit score
  • refreshes monthly & for free
  • provides debt analysis with personalized offers tailored to your credit profile

I use Credit Sesame and recommend it to anyone who wants to be aware of and improve their financial situation!

2 – Keep a Low But Active Credit Card Balance

My loan officer told me one of the fastest ways to raise your credit score is to use a credit card each month… keep it active.  So I have an Old Navy credit card (because I love to save an additional 10% every Tuesday).  My limit is just $500… he told me to put about $50-$75 on my card each month (he told me to SHOP at Old Navy… OK!).  I pay it off before any interest accrues, but for a few months prior to taking out a loan for our new home, actively using and paying off this card would help.  The biggest spread you have between your balance and your line of credit, the better.  So if you have a card with a $5000 credit limit, using about $500 of that each month (and paying it off) will help your credit score.

If you don’t have a credit card, you should have one.  We have a list of the best rewards credit cards (you might as well earn some rewards for using credit!).

best reward credit cards

3 – Pull Your Free Credit Report

check-credit-report

You are entitled to 1 free credit report every 12 months from each of the 3 national consumer reporting companies-Experian, Equifax, and TransUnion! It is important to check your credit report regularly for accuracy and signs of fraudulent activity.  You can get that yearly from AnnualCreditReport.com.  You can either pull all three reports once a year (do it on your birthday to help you remember), OR every four months pull just one of the credit reports from one of the credit bureaus (do it in January, May, and September… those are months that the kids are either returning to or finishing up school).

In the last three months my credit score has gone up 30 points, just by doing these few small things.  Now, by all means, I’m no financial advisor… I’m just sharing what worked for me.  Talk to your lender about specific ways you can raise your credit score, based on your situation.

The higher your credit score, the better interest rates you can get on a home loan.  With the real estate market picking up, we decided now was a great time to move into a new home.

What other things have you done to improve your credit score?

33 Ways To Raise Your Credit Score

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Comments

  1. Hi! THese are fabulous, but when I first started using Credit Sesame it charged me after the first month… not sure how it is completely free to use, any ideas?

  2. Credit Sesame stopped working for me because it had been so long since I had any credit of any kind, I no longer have a credit score. Neither does my husband. Its strange!

  3. Thanks for this post. I am curious on the Credit Sesame…did you sign up with just one account under just your name Cathy and does it give you data from both your hubby and you? Or do you have to sign up as 2 accounts–one for you and one for your hubby? We have the joint accts now, but in our past we had seperate which has effected out credit scores individually. Wondered if that matters?

    • Hi Heather. I did it just under my name/info. Any accts that we own jointly are factored in, but he does have some accts in his name only, so his score is different than mine. I should sign him up too! Great idea!

  4. Connie Abbott says:

    Thank you for these suggestions! I saw your list of links to books we could buy, and after reading the reviews on Amazon, I thought I’d check out our library website to see what they had available. Sure enough, they have a wide selection of books on the subject of credit scores. While I was at it, I also looked for books on identity theft. When you check out these types of books, look for some of the more recent publication dates, since the information could become outdated more quickly than for some other subjects. Thank you for bringing up the subject for our awareness!

  5. I too have been following Dave Ramsey for the past few months now. We will be debt free by the end of the year.

  6. Ngan Menegay says:

    Just signed up with Credit Sesame. Great service. Thanks for the recommendation!

  7. Thanks! This is a great little article. My hubs and I are looking into either buying or building a home, (probably building) and one of the things we’ve been working on is our credit. It’s good, but we know it would be best for us if we got each of our scores a little higher. If you come across any info on the credit impact and process of building a home instead of buying one already on the market, please pass it along! And thanks again for sharing your story!

  8. Lucretia says:

    I am really happy to read this blog posts which carries tons of useful information, thanks for providing these information.

  9. I’m kinda nervous about an app that I ug my ssn in to… Do you know anything about credit sesame as a company, or any info the program may retain/have access to?

    • *plug

    • I’ve known about this company for three-ish years now and finally signed up earlier this year. I signed up while on my computer and that’s where I input my sensitive information. On the app, none of that info shows up. I also feel good about promoting (and using) this company because they’ve been featured in The New York Times, Wall Street Journal, CNNMoney.com, and several other reputable sites/sources. If you’re uncomfortable though, then don’t sign up. You can still improve your score using other practices…. I just love the monthly update on my status… it helps it stay in the forefront of my mind and keeps me on track.

  10. Just wanted to point out a few things for your readers since this post didn’t cover anything about negative accounts on your credit report or how to handle them.

    Tip #1 – Do not use a debt settlement company unless absolutely necessary. First of all, this is a rip-off. If you wanted to choose to settle your debt (negotiate a reduced amount to pay off the balance) the best way to do that is to call the collection agency yourself. All settlement companies do is make the call for you, and then give you a loan for the combined amount that you would owe multiple accounts with interest (sometimes with additional fees tacked on). You can’t really settle account that isn’t in collections yet anyway, due to changes in the laws pertaining to credit cards. Secondly, settling an account should be a LAST resort… like if you need to improve your score ASAP. If you can pay off the total amount at all, within a reasonable amount of time, you should always try to pay off the full balance instead of settling for a lesser one. WHY? Because settling an account will show up on your credit report as a “settlement” rather than a “paid in full”. A “paid” status is raises your score higher than would a “settlement” status, by quite a few points.

    Tip # 2 – The age of your credit history is important. Do you have a store card open that you’ve had for 10 years but never use it and it’s your oldest account? Even if you don’t use it, keep it open. It lengthens the average length of your credit, which is good for your score. Some advisers suggest closing unused accounts, to lower your “debt opportunity” (meaning how much credit you have available). Having too much credit available, can hurt your score because you have the opportunity rack up a lot of debt quickly without opening any new accounts. So having 10 credits cards open with limits of $5,000 isn’t a good idea. Keep the oldest one and close the rest. Or you could call the company and have them lower your limit.

    Tip #3 – Though having too much credit available is a bad thing, you must keep that in balance with the idea of debt:credit ratio. While you don’t want to have $50,000 in credit available to you to use at any given time, you also don’t want to have a high debt racked up with lower limit cards. Having $480 on a $500 gives you a high debt:credit ratio. So having a second card that has a higher limit with a lower balance or no balance, will help balance out/bring down your debt:credit ratio, which is good for your score.

    Tip #4 – To dispel a myth about loans… it is said that loan shopping (for a mortgage or a car loan) will only affect your score once. That is only true if you check your credit for a loan a few times within a short time period, typically 5 or fewer times in about a month. While the credit report score is only affected as if you checked your credit once for each type of loan, the credit inquiries (known as hard inquiries) still show up on your report, and you may have to explain each hard inquiry to another lender later.

    Tip #5 – Credit Scores are important for more than just credit – employers, gov’t agencies (for the purposes of obtaining security clearances) and even insurance companies will check your credit (soft inquiry = does not affect your score, does not show up on your report to lenders) to see how responsible and reliable you are as a person. Did you know that your credit score can impact your car insurance rates? Some insurance companies charge higher rates to those with poor scores because poor scores are often a reflection of your responsibility/reliability as a person and drive in general. You can also get passed up for that job you wanted based on what is on your credit report. So CREDIT SCORES ARE IMPORTANT EVEN IF YOU DON’T USE CREDIT. This is why even if you are debt free and buy everything with cash, you should still use the method of having one card that you pay off every month.

    Tip #6 – Credit score websites and monitoring companies DO NOT provide your REAL score. Those websites have built in score calculators that will ESTIMATE your score. The only real way to obtain your score that lenders see when they pull your credit is through the FICO website (myFICO.com) and by viewing your annual credit report through annualcreditreport.com. The other sites might be close (and sometimes dead on) but they truly are just estimations of your score. I have not only learned this through research, but also personal experience. I used to have credit monitoring through one of TransUnion’s report monitoring sites and when I had my credit pulled for a loan, my actual score was higher for 2 of the bureaus and lower for 1.

  11. when building you have to get a construction loan. you must have a higher credit score to qualify for a construction loan.
    however, some builders will have you give them a down payment and then they build the house and then when it is finished they sell the house to you at the agreed price when you signed the papers and made your choices. this way you just get a regular mortgage for the balance you owe them.

  12. penelope says:

    this credit sesame was way off on me. they sure know a lot of your business during the verification.
    anyway. they said my score of 640 was very poor. a lot of other sites say it is good. none have said poor let alone very poor.
    it said my house was worth half of my mortgage which isn’t true. it said I have no equity, when I have over 60% equity.

    it only gives you one score and not your report. if you want your report they charge you $9 and it will only be from one credit reporting agency and not all 3.

    funny it takes your credit score a long time to climb higher. it is a slow process. but, one blemish and it falls super fast. and then it is very hard to get it back up there again.
    when you close out an account it will lower your score.
    when you shop around for a car or home or credit card, this will lower your score. it says it won’t, but it does. even if they are all within a week. it does. then your report will say lower score due to too many inquiries or pulls.
    so my best advice is to GUARD YOUR CREDIT SCORE WITH YOUR LIFE. it will save you a ton of money.
    you will pay less interest on a car and a house. this really adds up to thousands and thousands of dollars. doesn’t seem fair but I is the sad truth!

  13. Credit Karma is another free site where you can check your TransUnion score, as well as your auto insurance score. It will give credit alerts, but not your full report.

  14. Pay cash and you won’t need a credit score. I think credit cards are nothing but trouble. I would never own one again.

    • I agree that credit cards used unwisely are horrible. You need to have self control and stay with in your budget. If used properly, you can actually make many cards work for you (with rewards and benefits). You do need to have some sort of credit in order to qualify for a home loan though. I guess if you can save cash and buy your home that’s the very best scenario, but very few are able to do that.

      • I agree with this :) I love credit card points! I cashed them in for nearly $200 in gift cards recently that I’m using to get Christmas presents for FREE!

  15. We follow Dave Ramsey’s financial plan. I was disappointed that you suggest his method and then go on to suggest folks get a credit card. DR suggests you cut up your card and never apply for another. If you just pay with cash, then your credit score does not matter. I can do everything I used to do with a credit card with my debit card. I suggest you read The Total Money Makeover or take Financial Peace University, if you haven’t already.

    • You do not need a credit score to apply for a home loan. It’s called manual underwriting.

      • I have always felt Dave Ramsey had some really fantastic suggestions for getting out of debt, but I have never agreed with getting rid of credit cards completely. You can apply for a mortgage without a credit score, though the process is much more tedious and time consuming. As I stated in my list of tips above, your credit score isn’t just used for applying for credit. Employers look at it to determine your character. Home and auto insurance companies check it and actually give lower rates to people with better credit scores. When you go out and get a new cell phone plan, they check your credit. If you want a home security system, they will do a soft pull on your credit.

        Credit scores are not just about “credit worthiness,” they are an indicator of your character and LOTS of companies use it. So having a credit card that you use on a semi-regular basis and ALWAYS pay off each month is NOT a bad thing.

        But I think it’s easier for Dave to tell his readers not to have a credit card at all because a lot of people out there will get right back into debt. It’s like going on a diet… you lose weight and once you reach your goal, most people gain some or all of it back.

        Just my two cents. (fyi, I’m a financial analyst for a living, if that counts for anything)

    • I’ve read it. But to build my bad credit, I needed to show some good credit history. So buying some clothes on sale and then paying it off before the due date is advice I took from our mortgage broker. Doing that helped raise my credit score. I don’t have any credit card debt anymore, nor do I plan on carrying cc debt ever again. We just moved into our home 2 weeks ago btw!

  16. If you have bad credit, and you’re trying to rebuild your credit, and the suggestive is to get a credit card to help rebuild, which credit cards out there would you recommend that don’t have a ton of fees etc??

    • Lori Baggett says:

      Cherlene,

      I highly recommend a card that has rewards points if you can qualify for one. Not only can you rebuild your credit, but you can also earn cash back or even points to use for getting gift cards or gear in the future. Most credit card companies offer cards that do not have annual fees, though not all of fee-less cards are available to everyone.

      If you have poor credit and are simply trying to rebuild your credit, you need to make sure that you discipline yourself to only use the card for 1-2 purchases a month and PAY IT OFF MONTHLY. Most credit cards give you like 21 days from the date of purchase before they charge interest for a purchase, so sometimes that means paying your balance before the due date, otherwise you’ll receive a statement the following month for the interest on the purchases, even if you paid the purchase off already (if you paid it after the 21 days but within the same statement month). that’s a little thing they don’t openly tell consumers. and something I had to learn the hard way.

      Discover card is famous for giving credit to consumers with poor credit. Citi always is pretty flexible with their cards, though you have to make sure that you are applying for a low to mid range card. If you apply for platinum with a bad credit score, you will likely be declined. So it’s best to go for one of their basic cards or one that offers only a few benefits. In other words, don’t apply for their “cadillac” of cards when you have the credit score of a “buick” if that makes sense.

      Go for a card company that offers online services so you can quickly pay your balance online. It gives you better visibility into your account.

      • Thank you Lori for your prompt response…

        Any particular credit card you could recommend?

        • I’m a big fan of Citi myself. My “main” credit card is through them and they manage two of the store cards that I have (best buy and sears – i only have these because they offer 0% financing a LOT). Their customer service is helpful and they have online and phone support.

          I have had their diamonds rewards card and their thank you rewards card before. Again, I highly recommend a card with some type of rewards if your credit is good enough to qualify. Citi’s Thank You rewards program recently affiliated with Amazon and you can now use your Thank You points to buy anything on amazon. The points to dollar conversion is slightly less than 1% (for example I have 6,078 points and that = $48.62, which is $0.08 per 1 point). So it’s not the greatest reward program, but it still add value. It’s much better than not having a rewards card at all. Their conversation rate is 1% for some retails if you use their thank you points for gift cards. Like I can get a $25 gift card to best buy for 2,500 points (25/2,500 = 1%).

          Don’t let the math confuse you. lol. Basically any reward at all is better than no reward, but sometimes rewards cards are harder to quality for. If you know your credit score, or can ball park it, it might pay off to call citi directly(or another company) and ask which card they offer would be best for you to apply for.

          I also know people who are pleased with Chase and with Capital One.

  17. Thank you again… I haven’t checked my score in about 6 months, but I have been trying to rebuild my credit. It was a lot worse than what I saw last time, which was somewhere between 600-650 ( this is due to co-signing for a relative, and allowing them to use your credit card a few years back ), slowly but surely I have brought it up. I will look into the Citi card and go from there. I hope this is a decent score :/

  18. My wife and I have excellent credit (scores over 800). I was shocked that my insurance score was “D1″ (vs A1). A disclosure in my policy listed reasons for less-than-perfect score:

    1) No history of a car loan. I never had a “car” loan in my life. When I was young I used renewable 90-day notes (available to persons with high credit scores). When personal interest deduction ended, I used my home equity line. How dumb is that?

    2) A ‘hard’ mortgage inquiry. I was sure this was an error until I discovered the offending inquiry was same date that I called about increasing my checking account credit line (which is not a home equity line). As it turns out, the inquiry type was coded ‘non specific’, but the insurance score program interpreted as a mortgage inquiry because it was handled by my bank’s mortgage division (Bank of America). No one at BoA or Equifax had a clue how to get this corrected since there was no error on the the credit report.

    3) The average age of credit on my credit report is less than 10 years (9.1 yrs to be exact). As it turns out, credit information is dropped from the report 10 years after an account is paid out or closed, so it’s actually quite hard to achieve an 10 year average age.

    My carrier, Progressive Direct, has a special team to handle inquires on insurance score. Fortunately, I was able to get the ‘no car loan’ ping removed by an understanding supervisor who used his authority to re-categorize a previous home equity line that I used for purchasing a car. He said the bogus mortgage inquiry was an unfortunate result of a highly automated system, but his hands were tied. I had to wait two years for the inquiry to drop from my credit report and then request another insurance score rating. By then, the average age of my credit dropped to 8.9 yrs because one of my oldest credit relationships was closed 10 years ago, and thus dropped from my credit report.

    Hopefully my experience will help others play this bizarre game.

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