There is only one credit score that matters and that's the FICO Credit Score by Fair Isaac Corporation.
In this guide, I show you every step you can take to legitimately increase your credit score so you can, at the very least, be better than the average.
What is a credit score in 30 seconds…
Your credit score is a number between 300 – 850, better is higher. It's a measure of how likely you are to default (fail to pay) on a loan, the lower the number the greater the risk. Excellent credit is 781+, good is 661-780, fair is 601-660, poor is 501-600, and bad is anything below 500.
Your credit score is made up of five factors (image from FICO):
You can review your credit score for free with tools like Credit Sesame.
How to Increase Your Credit ScoreThe key to increasing your credit score is to improve those five factors.
This guide is broken up into three sections:
- Establishing Credit
- Doing No Harm
- How to Boost Your Score
- And Keeping it High
It's possible, especially early on, that you might not have a credit score at all or the dreaded “not enough credit history.”
If this is you, review our guide to How to Establish Credit.
Doing No Harm!
Be extra diligent and avoid the following at all costs.
They will reduce your credit score far more than any suggestions we make about improving it.
- Don't miss payments or pay late (Payment History) – This is the most important mistake to avoid as it accounts for over a third of your score. Miss a payment or turn it in late and you'll sink your score.
- Opening new lines of credit (New Credit) – Don't apply for anything that will involve you potentially getting an offer of credit, such as a credit card.
- Closing any open lines of credit (Amounts Owed, Length of Credit History) – When you close a line of credit, say a credit card, it impacts two factors. By lowering your total available credit, you will increase your credit utilization (bad). You also affect the Length of Credit History, which can be bad if you close one of your older credit cards.
- Don't pay off that charge-off (Payment History) – If a lender “charged off” a loan, which means they've given up on it, it will hurt your credit score for seven years. If it's already happened, the damage is done and is slowly subsiding. If you pay it off, it'll reset the clock unless you've negotiated (get it in writing!) with the lender to have them remove it.
How to Boost Your Score
Enough doom and gloom, what can you do to increase your score?
- Pay down debts – The lower your credit utilization, the better. A person who uses just 5% of their total credit is safer than someone who is using 50%. Pretty obvious the fastest way to do that is to pay down some existing debt.
- Increase your credit limits – Paying down debt is the numerator in the credit utilization equation, increasing your credit limits is the denominator. Ask your existing credit cards to see if they will increase your limits. Here's how to ask a credit card how to increase your limit.
- Dispute errors – Your best shot of improving your score is to find errors and fix them. Check your credit reports and go through them very carefully for any negative marks. Do you see any accounts that aren't yours? Dispute them. Every credit bureau has a process for disputing errors and these can take a long time but offer the best bang for your buck (that's why you should be monitoring your reports all the time, not just when you need good credit). For more on this, Credit Karma has a guide on disputing errors.
- Fix omissions – Credit bureaus aren't perfect (shocker!) so check that they have all the accounts you are responsible for, you may find they're missing ones that could improve your Payment History, Length of Credit History, Amounts Owed or even Types of Credit In Use.
- Ask for Forgiveness – If you have a late payment, ask the lender for a “goodwill adjustment.” This works best if you have a great relationship with the lender because you're asking them to remove the mark from your credit report. Click here for a template but make sure you edit it to build a stronger personalized case.
- Negotiate Removal – If you don't have a great relationship (like if you're behind on payments), you can try to negotiate a deal with a lender that involves removing those marks in return for an installment payment plan or lump sum payment.
- Dispute late payments, collections, etc. – Some experts out there tell you that they don't advocate their readers to dispute legitimate late payments or other negative marks. I'm telling you that I'm a realist and this is a strategy plenty of people use with great success, let your own moral compass guide you. This strategy works because sometimes the creditor can't verify the details and the mark will be removed.
Let's Keep It High
From here, it's straightforward – keep making those payments and keep an eye on your credit reports.
How do you make sure you never miss a payment?
- Use no more than two cards. You don't need five credit cards, you need at most two cards. The more cards you have, the more statements you get and the more payments you have to make. It's sucking up your time, get it down to just two cards.
- Set up automatic payments. I make sure I get an email notification a few days before every automatic payment, so I can review the statement for errors and confirm my bank account has sufficient funds.
How do I keep an eye on your credit reports?
The law states that you can get access to your credit reports every single year. I review each credit report on a rotating schedule, one every four months. Equifax in the Spring, Experian in the Summer, and Transunion in the Fall – all via AnnualCreditReport.com – the only place to go for your credit report.
Monitor “score” with free services
On a more regular basis I log into services at Credit Sesame, Credit Karma, and Quizzle that monitor my scores for free. They don't provide FICO credit scores but they do offer the proprietary scores from the credit bureaus, which is good enough to act as a “canary in the coal mine” type of alert to changes.
For example, when I log into Credit Karma I see a VantageScore 3.0 from TransUnion and from Equifax.
If I see any big numerical moves, I know I need to review that credit report. A small dip, like 1 point on Equifax, isn't worth investigating.
What About Credit Repair?
If your score is low because of previously made mistakes with credit, credit repair can be a viable option to try to improve it. Whenever there are bad marks on your report, those marks stay on for a period of time and keep your score low. These are events like a late payment or bankruptcy.
What credit repair companies do is take some action to try to remove those black marks. They will do things like dispute negative items or take other steps to get them removed. They're going to be expensive but if you have a need, they can be worth it if they are successful. They are only increasing your score by removing the negative items.
If you have no negative items (or no credit history at all), they cannot help you.