How to Improve Your Credit Score

improve credit score

What is a Credit Score?

Before you delve into how to improve your credit score, it’s important to understand what it is. A credit score is a number assigned to you that shows how much risk a lender takes if they lend you money. It’s simply an evaluation of how worthy you are to receive any type of credit. The lender does this analysis by checking your credit history. Credit history encompasses several factors including how many accounts you have, the amount of debt assigned to you, and the rate of payment for this debt.

Mainly, the credit score is between 350 and 850, with 350 being the lowest score one can have. People who have 850 are less risky and can be granted any loan when they need. The Fair Isaac Corporation (FICO) came up with the Credit score system that financial institutions use.

When you visit a bank to apply for a loan or credit card, the first requirement is your credit score. A low credit score can have a huge impact on your financial life. Many lenders won’t offer you any form of credit with a poor score. In case you secure a loan with a low score, the interest rate charged is always high. The repayment period is shorter also. It’s, therefore, important to take steps to improve the score.

Aim to have a credit score of 650 and above. If you check the requirements of many banks online, you’ll realize this is the lowest score to qualify for any loan. A good score starts from 750 to 850. Apart from getting a loan, a good credit score helps you get a better rate when purchasing a phone or even renting an apartment. Most agents will inquire about your credit score as a way to judge your financial stability.

To calculate your credit score, several factors are considered. These are:

  1. Types of credit you have
  2. Any new credit opened
  3. History of payment
  4. Total sum owed
  5. Duration of credit history

The biggest percentage of your credit score is determined by your payment history. It can be up to 35% of your total score. Therefore, you should pay back what you owe according to the terms of the agreement. Have a longer credit history for a better score for it accounts for 15% of it. 30% of the score is determined by the sum of what you owe. A better score is established when you owe less. The remaining 20% is divided between any new credit you have and the type of credit. You can build this score by having a student card which is ideal for beginners.

What Damages Credit Score?

A low credit score is not good especially in terms of your finances. It’s crucial to try and increase your rating to an acceptable number. Most financial decisions will be based on your creditworthiness. There are even some rental agents that won’t lease to you with a poor credit score. They take the low score as a sign of your financial instability.

Before you can learn how to increase your credit score, it’s crucial to understand how you got (can get) here in the first place. What factors contribute to a low credit score?

a) Late Payments

If you ever intend to take a loan or have a credit card, ensure all your payments are on time. Many lenders and credit card companies register you as not creditworthy if you make late payment a habit. The first late payment might be waived and understood by a lender. Some don’t even charge a penalty. But if you make each payment late then it can affect your credit rating immensely resulting in a lowered score.

b) Missed Payment

If you thought late payment is bad, try missing payments and watch your credit score plummet. Missing payments means you can’t meet your financial obligations. Lenders take this as a sign of financial instability and shouldn’t be trusted with more loans or credit card limit. It’s even better to pay late than miss the payment altogether. Once a lender starts posting past due on your file then your credit score takes a hit.

c) Many Credit Cards

Try and limit the number of credit cards you have to a maximum of three. More than that can affect your credit score negatively. You simply have many lines of credit open, owing a lot of money. Remember 30% of your credit score is based on how much you owe. If the percentage of what you owe is more than 30%, then you can bet the credit score will reduce drastically. Debt consolidation is a good approach to solve this problem.

d) Short or No Credit History

If you have no credit history at all, then no lender knows if you’re trustworthy or not. This results in a poor credit score. The same applies if the credit history is short. Many young people are just starting in the workforce. They have little or no credit history and consequently low credit scores.

e) Closing Credit Card Accounts

When you don’t want to use a credit card, it’s better to put it aside rather than close it. Once you close an account, your credit score reduces as a result.

f) Few Types of Credit

Having many credit types affects your credit score, but also does having few. In case you only have one credit card, by checking your credit score, you realize it’s quite low. Try and balance the types of credit you have improving your credit rating and score.

How Can You Improve Credit Rating?

After checking your credit score and realize it’s quite low, take the necessary steps to improve it. A good credit score opens many doors for you and makes lenders trust you more. Analyze your finances and see the factors that contributed to the low score. After doing so, you’re in a better position to know what needs fixing. You might be required to change a few things about your spending and how you manage finances.

Many people don’t know they have a low credit score until they apply for a credit card or loan and it’s rejected. Take the first step to be constantly checking your rating and score which gives you more control over your finances. You can check your FICO score online easily and keep updated as you take measures to improve it.

i) Plan your Payments

As busy as you can get means certain payments may be delayed. Come up with a reminder or notification on all the payments that must be made. By doing this, everything is paid on time and no reports of late payment are filed. As you improve your payment and keep them updated, your credit score improves. Pay all your utility bills on time as this also improves your credit score.

ii) Avoid Maxing Out Multiple Cards

Each credit card has a limit. By maxing one out and applying for another, it affects your score. It’s better to reach the limit, then pay for that first before you request for another. The credit card company marks you as a responsible holder and doesn’t flag you as a potential problem. Frequent maxing out of cards is flagged as a problem and can reduce your credit score.

iii) Check your Financial Credit Report

Everyone is entitled to one free annual financial credit report. Frequent requests for your credit report can affect your score. But one request per year has no negative impact on it. Take time to study this report and flag any issues you see on it. Some reports have red flags that affect your credit score but are not true. By addressing them, your score improves. At times the information is wrong and needs immediate correcting. If you don’t check your report then you might never know.

iv) Reduce the Rate of New Credit

As much as you might want to increase your credit history by opening multiple lines of credit, this is not a good idea. A lit of new credit can have the opposite effect on your credit score. You end up with a poor score that is not so easy to fix. It’s better to give your credit history time to grow.

v) Increased Accounts

Having one type of account doesn’t improve your credit score, it has the opposite effect. Try and diversify the accounts you have. You can have an auto loan, credit card, savings account, and mortgage. Your accounts are part of the credit score and sum up to 10%. All that is required is timely payments and your score rises. In case you are unable to pay your loan, it advisable to seek advice from your lender.

vi) Debt Consolidation

Debt consolidation at the start causes a fall in your credit score but after the transfer is done, the score improves. The main point is to ensure you make timely payments as required. Try not to pay late or miss a payment at any time after consolidating the debt. With debt consolidation, you pay off many of the previous loans and concentrate on the new one.

By bringing together multiple debts, you can shop for good terms like lower rates and better payment rates. A good example of debt consolidation is bringing together multiple credit cards under one and getting lowered rates after the balance transfer. You get a new card and an Intro offer of 0% for some time. Some credit card banks and companies offer up to 21 months.

vii) Never Close a Credit Card

To reduce the number of cards you have, you might be tempted to close one or two cards. When searching for a credit card to open, get one with no annual fees. A card without annual fees can go unused without costing you anything. Closing it hurts your credit score by increasing your credit utilization ratio. Keeping the account open is better.

viii) Simple Loans

Even with a poor credit score, you can still get a quick and simple loan. It’s usually a small amount of less than $5000. Once you get it, pay it back as soon as possible. The prompt repayment is recorded and reflects positively on your score. This can be a strategy for increasing the credit score. The only factor to note here is some lenders charge a penalty if you pay the loan back earlier than agreed.

ix) Charged Off Debts

A charged off debt is one the lender is no longer expecting any payment on. You stop making regular payments and the lender considered it as a loss. If you start making payments, the debt is reactivated and takes an immediate hit on your credit score. It’s better to visit the lender and have a discussion about it before you take any step.

Most probably the low score you have is as a result of this loan. Reactivating it makes things even worse. Some lenders sell off such loans to third party collection agencies. In case the lender hasn’t taken this step, you can negotiate and clear the loan in full. Request the lender to remove the charge-off note from your report later.

x) Pay Bills Twice Per Month

The norm is to pay bills and payments once per month. To improve your credit score, try and make two payments per one billing cycle. You can opt to pay every fortnight. By doing so, you reduce your credit utilization ratio and increase the credit scores at the end.


Having a poor credit score can affect your finances immensely. It’s advisable to find out your current score and take measures to improve it if it’s low. Certain factors contribute to a low score. Keep updated on your current rating and score every year. This is one way to ensure all the information on it is accurate. You can dispute any misinformation that negatively affects your score.

The best way to maintain a high score is timely payments. You can even split them into two in one billing cycle. Never skip or pay late if you intend to keep building the score. It takes time to improve the credit score because the damage took a while.