How to Raise Your Credit Score

Your credit score affects virtually your entire financial life. Why? Because all types of lenders, including banks, credit unions, mortgage companies, credit card companies, car dealerships, etc. use your credit score to decide not only whether or not to offer you credit, but also at what interest rate to offer it.

Actually, you likely have at least two credit scores, one from FICO (Fair Isaac Corporation) and the other from VantageScore.

Your FICO Score

FICO scores range between 300 and 850 and break down as follows:

• 800-850 Exceptional (20% of population)
• 740-799 Very Good (25% of population)
• 670-739 Good (21% of population)
• 580-669 Fair (18% of population)
• 300-579 Very Poor (16% of population)

The impact your FICO score has on your ability to obtain credit basically looks like this:

• 800-850 – you’re at the top of the list for getting credit at the best rates
• 740-799 – you’ll likely get better than average rates from lenders
• 670-739 – you’re highly unlikely to become seriously delinquent in the future
• 580-669 – lenders consider you a subprime borrower
• 300-579 – assuming you can get credit at all, you likely will have to pay a fee or deposit in order to get it

Your FICO score is weighted, meaning that different factors make up various percentages of it as follows:

• Payment history: 35%
• Credit utilization: 30%
• Credit age: 15%
• Different types of credit: 10%
• Number of inquiries: 10%

Your VantageScore

The three major credit bureaus, Experian, Equifax, and TransUnion, developed the VantageScore system that also ranges between 300 and 850. Its rankings go as follows:

• 781-850 Excellent (30.3% of population)
• 661-780 Good (12/6% of population)
• 601-660 Fair (18.3% of population)
• 500-600 Poor (34.1% of population)
• 300-499 Very Poor (16.7% of population)

The impact your VantageScore has on your ability to obtain credit basically looks like this:

• 781-850 – you’ll likely receive the most favorable terms and best rates for your credit accounts
• 661-780 – you’ll likely get approved for credit at competitive rates
• 601-660 – you may be approved for credit, but if you are, it likely won’t be at competitive rates
• 500-600 – you may get some credit, but you’ll get it with unfavorable rates and may have to make a larger down payment
• 300-499 – you likely won’t be able to get credit at all

Negative Impacts on Your Credit Score

Before you can improve your credit score, you need to understand what drives it down in the first place. So think about your answers to these questions:

• Do you make late payments?
• Are your credit cards maxed out?
• Do you close your old accounts?
• Do you have only very new accounts?
• Do you only use one type of credit?
• Do you often apply for new credit products?

If you answered yes to any of them, your credit score took a hit every time you engaged in one of these behaviors.

Now that you know what drives your credit score down, here are some ways you can raise it.

Check Your Free Annual Credit Reports for Mistakes

Probably the quickest way to raise your credit score is to avail yourself of your free annual credit reports and go over them with a fine-tooth comb, looking for incorrect or incomplete information. If you find any, notify the credit report company immediately. By law, it must investigate your claim within 30 days of receiving your notification, including notifying whichever provider(s) sent it the incorrect or incomplete information.

Pay on Time, Every Time

Given that on-time payments comprise 35% of your FICO score, you need to make on-time bill paying one of your top priorities. Keep a calendar of which payments are due on what dates each month, plus their respective amounts. This helps you plan ahead. You may also need to set up a budget if you constantly find yourself in the position of too much month remaining at the end of your paychecks.

Address Your Credit Utilization

Credit utilization refers to how much of your available credit you have actually used for each credit source. This is particularly important when it comes to using your various credit cards. When you’re contemplating how to raise your credit score, this is a good way to do it. It goes without saying that if you’ve maxed all of them out, your credit score is going to plummet. If there’s any way possible for you to make greater than minimum payments, by all means do so. But you also need to consider the status of each card. It’s better to substantially reduce the balance on one of your credit cards rather than reducing the balances on all of them at once.

Buy a New Car

Believe it or not, buying a new can help raise your credit score. How? If you currently have only one kind of credit, getting a new car loan may well give you another kind. Remember, credit type diversity accounts for 10% of your FICO score.

Raising your credit score often requires lifestyle changes. It can also take a while. But the benefits are well worth your effort.