5 Simple and Effective Ways to Raise Your Credit Score

Struggling with a low credit score that is keeping you from getting a mortgage? You’re not alone. Many people find themselves in a similar situation, but the good news is that improving your credit score is entirely possible. This blog will walk you through 5 simple and effective ways to help raise your credit score and get closer to achieving your dream of homeownership.

What is a Good Credit Score?

Before we discuss how to improve your credit score, let’s first understand what constitutes a good score. Credit scores typically range from 300 to 850. A score above 700 is generally considered good, while a score over 750 is excellent. To qualify for a mortgage, most lenders prefer a score of at least 620, although a higher score will help you get better interest rates and terms.

Knowing what’s on your credit report is the first step in your credit improvement journey. You can get a free copy of your credit report from the three major credit bureaus—Equifax, Experian, and TransUnion—once a year at AnnualCreditReport.com.

Things That Impact Your Credit Score

Several factors affect your credit score, some more significantly than others. Understanding these elements can help you focus on what needs the most attention.

• Payment History. Your payment history is the most significant factor in your credit score, accounting for about 35% of it. Late payments, defaults, and collections can drastically lower your score. Always aim to pay your bills on time.

• Credit Utilization. Credit utilization refers to the amount of available credit you’re using. It’s recommended to keep your utilization rate below 30%. For example, if you have a credit limit of $10,000, try not to carry a balance higher than $3,000.

• Length of Credit History. The longer your credit history, the better your credit score will be. This factor accounts for about 15% of your score. If you’re new to credit, consider keeping old accounts open to build history.

• Types of Credit. Having a mix of credit types (credit cards, installment loans, etc.) can positively impact your score. It shows lenders that you can manage different types of debt responsibly.

• New Credit Inquiries. Applying for multiple new credit accounts in a short period can lower your score. Each application results in a hard inquiry on your credit report, which can temporarily drop your score by a few points.

1. Check Your Credit Report for Errors

One of the simplest yet most effective ways to raise your credit score is to check your credit report for errors. Mistakes on your report can unfairly lower your score. According to a Federal Trade Commission study, one in five consumers has an error on at least one of their credit reports.

• How to Check for Errors. Request your free credit reports from AnnualCreditReport.com. Look for discrepancies such as incorrect personal information, accounts that don’t belong to you, or incorrect payment statuses.

• Dispute Errors. If you find any errors, dispute them with the credit bureau reporting the incorrect information. Each bureau has a different process for filing disputes, so make sure to follow their specific guidelines.

• Follow Up. After filing a dispute, follow up to ensure the error is corrected. This process can take up to 30 days, but the impact on your credit score can be significant.

2. Pay Your Bills on Time

Timely payments are crucial for maintaining and improving your credit score. Even one missed payment can have a negative impact that lasts for years.

• Set Reminders. Use calendar reminders or automate payments to ensure you never miss a due date. Many banks and financial institutions offer automatic payment options for free.

• Prioritize High-Interest Debts. If you have multiple debts, prioritize paying off high-interest debts first. This strategy will save you money in the long run and help you manage your finances better.

• Contact Creditors. If you are struggling to make payments, contact your creditors to discuss your options. Many lenders offer hardship programs that can provide temporary relief and prevent late payments from being reported.

3. Reduce Your Debt

High levels of debt can drag down your credit score. Reducing your overall debt will not only boost your score but also make you more attractive to lenders.

• Create a Budget. Creating and sticking to a budget can help you manage your finances and allocate more funds toward paying down debt. Track your income and expenses to identify areas where you can cut back.

• Snowball Method. The snowball method involves paying off your smallest debts first while making minimum payments on larger ones. Once the smallest debt is paid off, move on to the next smallest, and so on. This approach builds momentum and provides a sense of accomplishment.

• Debt Avalanche Method. The debt avalanche method focuses on paying off debts with the highest interest rates first. This strategy can save you more money in interest payments over time, but it may take longer to see significant progress.

4. Avoid Opening New Credit Accounts

While it might seem counterintuitive, opening new credit accounts can temporarily lower your credit score. Each new application results in a hard inquiry, which can reduce your score by a few points.

• Limit Hard Inquiries. Try to limit the number of credit applications you submit. Multiple hard inquiries in a short period can signal to lenders that you are a risky borrower.

• Consider Soft Inquiries. Soft inquiries, like those done by employers or for pre-approved credit offers, do not affect your credit score. They can provide insights into your credit status without the negative impact of a hard inquiry.

• Monitor Your Credit Regularly. Regularly monitoring your credit report can help you stay on top of any changes. Many financial institutions offer free credit monitoring services as part of their offerings.

5. Become an Authorized User

Becoming an authorized user on someone else’s credit account can help improve your credit score, especially if the primary account holder has a good credit history.

• Ask a Trusted Person. Ask a family member or close friend with a good credit history if they are willing to add you as an authorized user on their credit card account. This can help you build credit without the responsibility of managing the account.

• Understand the Responsibilities. While you won’t be responsible for making payments, any negative activity on the account can impact your credit score. Ensure the primary account holder is financially responsible.

• Monitor the Account. Monitor the account to ensure it is being managed well. Regularly check for late payments or high balances that could negatively affect your credit score.

Next Steps

Improving your credit score is a marathon, not a sprint. By following these five tips—checking your credit report for errors, paying your bills on time, reducing your debt, avoiding new credit accounts, and becoming an authorized user—you will be well on your way to raising your credit score and qualifying for that mortgage loan.

Remember, every positive change you make brings you one step closer to your goal. For personalized advice tailored to your unique financial situation, consider talking to a credit counselor or financial advisor.

Ready to take control of your credit and your future? Talk to a professional about your credit rating today.