Finance Blog
Become a Better Borrower with Your Credit Score
Do you want to improve your attractiveness to lenders by improving your credit score? There’s good reason to do so—a higher credit score can provide you a greater array of financial options and more favorable credit offers. And there’s always room for improving your creditworthiness by understanding your credit score, even if yours is good to begin with.
Keep in mind, however, that your credit score is based on your history of borrowing and repaying money, so there’s no way to instantly change it. But here are some effective strategies that can help to strengthen your creditworthiness over time.
Top ten strategies for improving your credit score
10. Learn what your current FICO credit score is and what appears on your credit report. You’re allowed one free credit report from each of the three credit reporting bureaus, accessible at AnnualCreditReport.com. When you pull your report, you can also pay a small fee to see your credit score. If you’ve used up your freebies for the year, Score Power can give you immediate access to your Equifax Credit Report, which includes your current FICO credit score.
9. Don’t open new credit cards that you don’t need just to increase your available credit. This approach could backfire and could lower your score.
8. Try to keep your total account balances as low as possible. High outstanding debt may negatively affect your score, as you have a greater chance of missing payments.
7. Check your report for inaccurate information and correct any mistakes. Incorrect information on your credit report is a warning sign for identity theft, which can be very damaging to your credit score. Check out more information for preventing and recovering from identity theft.
6. If your credit is severely damaged, or if you have a very short credit history, there are still ways to improve your creditworthiness over time. Consider opening new accounts responsibly and pay off debt on time.
5. If you fall behind on paying a bill because of illness, unemployment, or family issues, write a short explanation to the credit reporting agencies. They will add it to your credit report. It won’t improve your credit score directly, but creditors may take your personal statement into consideration when evaluating you. Also, call your creditor to explain the circumstances and, if possible, work out a payment schedule you can meet.
4. If you need help managing your credit, contact a reliable nonprofit credit counseling agency. Find an agency in your area through the National Foundation for Credit Counseling.
3. To minimize the number of inquiries on your credit report, don’t apply for multiple credit cards over a short period of time, and don’t apply for a card you’re not likely to get. Apply for new credit accounts only as needed.
2. Make all of your payments on time. If you are forced to miss a payment, be sure to pay it the following month along with the current payment. Past due accounts will be listed on your credit report. If you have missed payments, get current and stay current. As a general rule, the longer you pay your bills on time, the better your score.
And the number one strategy to improve your credit score…?
1. Continue to check your credit report regularly, charting your progress along the way. Everyone’s financial situation is different and all credit reports are different as well. Monitor your credit report for how certain activities affect your credit score. Keep an eye out for false information and identity theft. And watch and see how positive activities like on-time payments and a good mix of credit accounts will raise your credit score over time.
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I had a 726 credit score but my score was “dinged” with a judgment as a result of a former tenant dispute where I wound up in court and having to refund a portion of their security deposit. I was notified of this by way of my Equifax alerts when the judgment was put on my credit report a year later, which dropped my score to 676 when the judgment was reported as still outstanding. I quickly sent all three credit bureaus documentation to show that I satisfied the judgment. Is there anything else I can do? I was devasted by this incident.
@Nancy M. – Hi Nancy, If you think there is inaccurate information on your credit report you should file a dispute. You can find more information about filing a dispute here: http://blog.equifax.com/credit/what-to-do-if-you-think-theres-an-error-on-your-credit-report/. Thanks for reading.
Thanks for responding – the judgment was legitimate as I withheld the tenants security deposit due to damage they caused, but the judge ruled that a portion needed to be returned to the tenant which wound up as a judgment against me to pay them the portion that needed to be returned. I never knew that even though the judgment was satisfied per the court instructions, that the judgment would be reported. I would have thought that since the judgment was satisfied, it would never have been reported on my credit report but I guess judgments are reported because they are public records, regardless of whether they are resolved or not.
That “ding” should go away in a few years (3?). The only way to get it fixed before then is for the submitter or creator of it to remove it completely – as if it was an error and never should have been submitted. I had a medical billing company ding me in a similar way, but was able to prove to them it was their error – and they did remove the report.
@Don – Thanks for commenting. Judgments appear on a credit report for 7 years after the date filed. You can find more information about how long items remain on your credit report here: http://blog.equifax.com/credit/faq-how-long-does-information-stay-on-my-credit-report/
Regarding your #8, keep account balances as low as possible. There is some analysis that I think is missing in all this in terms of separating the good and not-so-good credit risks.
For example, because of some excellent rewards programs on credit cards (2% cash back on one) I use that credit card to pay just about everything I can. It has a high credit limit, about 2 to 3 times the average balance which can be 5,000 to 8,000 a month.
However, the critical missing element is that I pay off the balance 100% every month, and have done so on all credit cards for the past 20 years and there is no accounting for this “0 carryover” in credit scores.
This ability and consistency to pay off balances every month has to be an indicator of higher credit worthiness, ability to handle credit, and therefore a higher credit score, than folks who always carry over a balance and pay monthly minimums or a bit more.
Isn’t it?
@Don – You’re right; having a greater available balance contributes for a better credit score, so keeping account balances low is a positive activity.
Thanks for your comments, and hope to see you again on the blog soon.
You missed my point.
My account balances at the end of a billing cycle are by design higher than average – which is what your credit scoring formula uses and hence gives me a lower score, and tells me to lower my balances to improve my score.
What your scoring formula does not use is the fact that there is absolutely zero month to month carry over, as every months bill is paid in full prior to the due date, and zero interest is paid (which the credit card companies don’t like!)
You don’t even look at this data as far as I can tell in doing credit scoring, and this data should be a strong indicator of a person’s ability to handle and pay off more credit in the future, and hence a higher credit score.
My name is Richard and I have have the same issue as you. I just posted a comment like you did about a minute ago and I am waiting a response. If you would like to discus this matter with me my email address is rich33181@gmail.com. Hopefully we can get some answers to our questions instead of getting brushed off by the Equifax Blog. How frustrating.
My name is Richard. I have 4 credit cards each with a credit line of 1000.00 for each one. I pay the whole balance off every month on each credit line. My question is that if I pay the whole balance off every month on all accounts it will show that I always have a zero balance and therefore my score does not go up on those credit card accounts I pay off every month. The only time I see my score go up is when I pay my car loan which is a 3 year car loan and I have a rooms to go account that I pay down every month at a set amount of 330.00 for 4 years so I pay no interest. If I pay more then the set amount of 330.00 a month it will mess up my free financing. My question is how do I raise my credit score with the 4 credit card accounts I pay the total amount due every month which I know the credit card companies do not like but I feel it is my right to pay the whole amount or any amount right down to the minimum amount. I do not think it is fair that my credit score does not go up just because I pay the total of what is due on my 4 credit card accounts. It seems to me if you pay off the total amount due you are punished by the banks issuing the credit account just because you pay the entire amount and the banks make no interest on your credit card account you pay off every month. I was also told by one of the banks that owns one of my credit accounts to not pay the total amount off every month if I want my score to go up on that account. I do not see the logic in not paying off the total amount just to raise my credit score. Any input or information on how to raise my score with the 4 credit card accounts I pay off every month would be most appreciated. The one thing I will not do just to raise my score is only partially pay off the balance on my credit card accounts. Are there any other ways of raising my credit score with these 4 credit card accounts that I pay off every month besides only paying a portion of the balance. Why should my credit score be affected in a negative way just because the banks do not want me to pay the full balance every month.
A credit score is a point-in-time assessment. You could make a payment and pull your score before your creditor reports the payment/new information and your credit file is updated. In this situation, your score would be driven off of the balance before you pay off your card, thus potentially reflecting a lower score.
Credit scores are calculated based on a number of different factors and can vary for each consumer based on their financial situation. Because your credit report is updated every day, your bureau score is recalculated continuously. It could change every day as credit grantors, public records, and collection agencies report data. So your credit score from a month ago is probably not the same score today.
Check out some other blogs for more information about how credit scores are calculated:
http://blog.equifax.com/credit/credit-report-update-how-is-information-updated-on-my-credit-report/
The point-in-time credit score assessment is understood. As your credit card balance increases with charges, and then is decreased with a payment, a different amount of credit balance vs approved credit line will be seen on different days during every month. And I understand that those with credit balances close to their limits, vs those with balances much lower than their limits, would have a poorer credit score.
Between the time a credit card closes each month, and the due date of the payment, typically the card balance continues to grow with usage. When the payment is made on the due date, the then current balance is reduced by that payment amount (adjusted for interest paid if any). So people such as Richard (above) and me who pay in full each month will likely never show a zero balance owed at any one particular time.
What’s missing completely from the credit score equation is the long term history of carry over balances from month to month as an indicator of credit worthiness. Look at two classes of credit card users: a) those who pay only the minimum each month when due because they simply do not have the money to pay the full balance and so carry over balances to the next month and pay interest on it; and b) those who do have the income to pay the balance in full each month and have zero carry over and zero interest paid. I’ll bet that if you could compare group a) vs group b) against their history of credit problems, missed or late payments, etc. you would find group b) to be a much more credit worthy group, and therefore should carry a higher credit score based on zero carry over balances – and simply being better money managers.
Show us some research on this point, please.
Or would the credit card companies frown on this, and use their influence on you to not do this as it might encourage others to make payments in full every month too, thus driving down their interest income while still paying us the 1% to 2% rewards cash back on all purchases?
Does anyone know if you’ll take a hit to your credit score (a pretty good one I may add) for consolidating your credit card debt to eliminate making several payments every month?
@April – Take a look at this blog about how your credit score is calculated (http://blog.equifax.com/credit/debt-reduction-why-paying-down-your-credit-card-debt-helps-your-credit-score/).
If you consolidate your credit card debt and close all the other accounts, you might be eliminating your available credit. Even if you have the same dollar amount of debt, you have less credit available to you. However, paying off debt is a good financial decision, and paying your credit card payment on time every time will always help.