How to Improve Your Credit Score
There is such a thing as spending too much time, effort, and energy on trying to improve your credit score. Yet, if by following a few simple steps it can help you improve your financial situation and your credit score, then it makes sense to try to boost your credit. (See also: 10 Surprising Ways to Negatively Affect Your Credit Score)
Despite the claims of people like Dave Ramsey, FICO scores matter. Your credit score may impact your insurance rates, home loan rates, credit card rates, and even if you can get a cell phone (without a deposit).
Tips to Improve Your Credit Score
Get a copy of your credit report and credit score
Review your credit report
It is important to verify active accounts and other facts that have been reported on your credit report. If there is a charge that is not correct, you will need to contact a reporting credit agency. Let them know that an item has been inaccurately reported on your credit report, and give them the necessary proof. They are then required by law (if it was inaccurately reported) to remove the item from your credit report within 30 days.
Set a budget and make payments on time
The biggest positive influence on your credit score is your ability to make payments on time. Learning how to make a budget that helps you live within your income is the key. If ou’ve never set up a budget, just be sure to put a name on every dollar. Your money should have a purpose and a mission. It is the budget that dictates where every dollar goes. Once the budget is set, you could use something like the envelope system to help you live within your means.
Use credit cards sparingly and pay off the balance in full every month
One of the best ways to improve your credit score is by using credit cards and paying off the balances in full every month. Dave Ramsey claims your credit score is an “I love debt score,” but I disagree. Your credit score reflects how you interact with debt. If you are responsible with credit, your score improves. If, however, you really just love debt and don’t responsibly handle your debt, then your score goes down.
The reason credit cards are a great way to build credit is that you only need to interact with debt instead of going into debt. If you use credit cards, you can have no debt and a good credit score.
Credit Score Cautionary Notes
Avoid sneaky tips and tricks
It is not unusual for articles on how to improve your credit score to introduces secrets, tips, or insider tricks. The fact is that there is no fancy footwork required. Simple and disciplined personal finances coupled with a basic understanding of how credit scores work is all that is required.
Go for a better financial situation — not a better credit score
While you might be taught to build credit for credit sake, I suggest that you only do activities that improve your financial situation and your credit score. At one point in my life, someone suggested I buy something with a credit card and pay for it over a three month period — just to build credit. I said, “No, thank you.” If at any point doing something builds your credit score but does not improve your personal financial situation, then do what is best for your finances, not your credit.
As a positive example, if you can get on a plan where you learn how to pay off credit card debt, this will help your financial situation and your credit score.
Don’t blindly build credit for credit’s sake.
Choose financial peace over a credit score
Some people have debt allergies. The idea of having a credit card or any debt makes them extremely uneasy. In those cases, there is no need to interact with credit because of the emotional cost.
For example, when considering if you should pay off the mortgage or invest, you should know that paying off the home would (eventually) likely result in a lower credit score. Nevertheless, some people just feel better about the idea of paying off the house. In this case, do what brings financial health and peace — not an improved credit score.
What do you do to build your credit score? Any other tips on how to build credit?
Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.
Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.