Credit scores are complicated, and the process to improve them may look different for everyone.
When Willard Carpenter, 68, applied for a loan to open a new business, he realized his credit rating wasn’t high enough to get it approved. After checking his credit history, he discovered several issues that he needed to address.
Mr Carpenter’s credit has been badly affected by the credit card debt his father left on their joint account after he passed away more than a year and a half ago. He also hasn’t had credit cards for at least 10 years – he stopped using them after declaring bankruptcy due to credit card debt.
Now he’s working with a financial advisor to clear his father’s debt from his history and start building his credit safely.
Here are some tips to improve your credit score:
Know your starting point
The first step to raising your credit score is knowing your current score and what’s showing up on your credit report, says Kristin Myers, editor-in-chief of The balancea personal finance site.
“You can’t fix what you don’t know,” she says. “Check if there are any errors or if you have already made a dispute and it is still showing up.”
Once you see what’s in your report, you can begin to identify where you might have weaknesses. For example, if you have a large debt on one of your credit cards, start paying off that debt to reduce credit usage that affects your credit score.
Manage your debt
Ideally, you pay off your credit card every month. But, if that’s not possible for you, making small payments can help you maintain or increase your credit score.
If you can, pay a little more than the minimum monthly payment so you pay less interest over time.
A well-known method of payment is the “debt snowball” where you pay off your debts from smallest to largest, to build momentum and good habits. Once the small debts are paid off and you get into the habit of paying off your debts, the money you used to put aside each month can then be used for larger debts.
Avoid more debt
Not taking on new debt is another way to boost your credit score, says Myers. If you haven’t repaid the debt you currently have, it’s best not to open any other lines of credit.
If you are in a situation where you rely on credit due to economic circumstances, try to avoid unnecessary purchases which could significantly increase your debt load.
Use credit cards, but in moderation
Many people’s first instinct is not to use a credit card to avoid getting into debt. However, this is not a good tactic if you want to have a good credit rating.
It’s best to have at least one credit card, but the key is to use it in moderation, says Colleen McCreary, consumer finance advocate at Credit Karma.
“You don’t want to use more than 30% of the credit available to you, but you want to use those cards even a little to prove that you can be trusted,” she says.
When you use your credit card, be sure to pay on time each month and try to use it only for purchases you already intended to make and can afford.
Do not close your old accounts
After paying off your credit card, you might think it best to close the account to avoid using it again.
It actually hurts your credit score. Since one of the factors in your credit score is the length of your credit history, if you close your oldest credit card account, you also erase it from your credit history.
“Keeping the length of that credit history open is extremely important, because the length of time you’ve had a loan or line of credit is going to boost your credit score,” says Myers.
M Carpenter plans to boost his credit rating by using a credit card with a low limit and paying it off every month. He plans to open three credit cards and use a maximum of 25% of authorized credit, he says.
Updated: October 21, 2022, 04:00