When I got my first credit card the lesson my dad shared with me was simple:
You only have a credit card for the sole intent and purpose of raising your credit score.
After that, he instructed me to make sure I used my credit card for specific purchases only such as fuel for my car or essentials during college, and to always make sure I paid my balance in full.
The purpose of raising my credit score starting at a young age was to set myself up for the future when it came to buying cars, landing the best insurance rates, and even buying a home down the road.
That being said, sometimes the opportunity to start young when it comes to credit scores has passed, but that doesn’t mean you can’t raise your credit score now!
Today, I will share with you the steps to help you raise your credit score, but first, let’s identify the reasons why you want to have a higher credit score in the first place…
Why You Need a Higher Credit Score (5 Benefits):
When looking to raise your credit score, it's first important to know why you're even doing so in the first place. Below, are a few quick reasons as to why there are immense benefits in raising your credit score!
Five perks of a higher credit score includes:
- Better odds of receiving lending or being approved for loans
- Lower interest rates the higher the tier score of credit, less interest you pay on loans such as car loans or mortgage.
- Rewards, Cashback & Points. You can earn rewards and discounts on the things you regularly purchase already.
- Travel Rewards and hacking. I have a friend Nick who travels off his credit rewards. He has gone on a round trip from Iowa to Europe for only about $300. Many use their rewards to get nearly free trips all over the world.
- Credit Scores after 760 are just bragging rights, but it's more acceptable and celebrated than bragging about finance milestones. Having a high score shows being responsible and that’s reason to celebrate because good credit can potentially open up doors that poor credit or no credit wouldn't be able
Now that you know why there are numerous benefits to raising your credit score, here are actionable steps to help you do just that!
How to Raise Your Credit Score in 7 Steps:
Here are the hacks and simple steps to boost your credit score, that I personally used to help increase my credit score!
1. Pay Your Card Automatically
Set your credit card to pay off automatically before the bill is due.
Personally, I like to pay my balance off 5 days before it is due. I do this to lower my utilization rate to 0 when monthly credit is reported by the bank.
Utilization under 10% boosts credit score. Your credit utilization ratio — the amount of credit you use, compared to your credit card limits is one of the greatest overall factors impacting credit score.
As an example below, using Credit Karma Payment History, credit cards use and derogatory marks make up a “High Impact” on credit scores. These three factors make up the most significant impact on your credit score.
2. Credit History Keep Oldest Card Open
Scores will be higher than the long history you have of on-time payments.
Before college, I added a credit card and took out student loans which I have paid off early. Paying off early ironically decreased my score but still in the sweet spot between 760-800 (Though 850 is perfect about 760 is great, 800 is bragging rights)
Another option for younger people to become authorized user on parents accounts. According to Credit Karma showed below is chart lenders look for in the Credit Age.
Credit Age makes a “Medium Impact” on credit score.
While just beginning Credit you are limited on credit history it is a factor in credit score. The older your good credit the better history you’ll have and will be a better score in this area on a credit report
3. Limit Hard Inquiry Credit Pulls
Limit the hard inquiries for credit, more than 2 in a 6-month period can hurt your score, only apply for loans or credit you need.
What are hard inquiries?
When you want to apply for a new loan or new line of credit, refinancing or increase in credit, you have the lender see your eligibility they pull an inquiry which tells them if they’d approve you based on current credit.
You don’t want to have too many inquiries within year before attempting to get a major loan or mortgage.
If you have too many inquiries in a short period of time, your score will drop and creditors will see you as being potentially more risky.
Below are tips from Credit Karma to limit your hard inquiries on your credit report:
4. Keep your longest credit card account active!
If you can have the card paid off, you don't have to use it, but consider keeping it open!
I used this strategy with student loans for a bit as I paid all but $300 because interest was only 3% and help me beef up to my credit score, (also figured I could get higher return investing with such minimal debt and interest could leverage, saving in Roth IRA, another topic for later).
Length of credit history is important, my credit score actually went down after I closed my student loans off entirely last year. Paying off my loans impacted my credit score because I only had my credit card and student loan history, dropping my average age of credit.
Remember, it is mportant to keep initial credit cards open until you have established credit history. The longer length of your credit history improves your credit score.
Note: You should pay off your student loans!
5. Use Apps to monitor your score.
While FICO score and app estimated score give a good idea usually on credit habits. Apps also break down important factors and grade you on your account.
I learned a lot through Credit Karma and using the Credit Sesame app! A good idea to also do a free credit check on AnnualCreditReport.com and check the score and any possible wrong information that can impact your score (like phantom debts)!
Having apps at the tips of my phone was a great resource to monitor and learn about credit scores. Several apps to choose from include:
The above have both free and paid features and with Credit Sesame you have the credit score grading system. They help identify your strengths and weaknesses as to what is impacting your credit score. I like the feature as it gives letter grades and also gives guide to ratio lenders typically like to see.
6. Pay Off Debt , increase Income, spend less
Two ways to improve score that are simple:
- Decrease the amount of debt you owe, or
- Earn more income/cash flow
Pay Off Debt:
If you can have a solid debt to income ratio, with a smaller percentage of debt compared to the income that’s good news because you are deemed a less risky borrower.
You may decide to purchase necessities and not wants. In one of my favorite books “Your Money or Your Life” by Vicki Robin, the author breaks down money as your life energy and how many hours of your life purchase is, opportunity cost.
Before I make an impulse buy online I give myself a two day period to check that I really want it, or impulse buys. This helps prevent racking up debt.
To see how to pay off debt, here are 25 ideas to help!
Make More Money
Another way to raise your credit score is to simply make more money and increase your cash flow.
By making more money each month, even if it's a few hundred dollars on the side, you can use that money to pay off debt, get ahead on interest and begin to raise your credit score.
Sometimes, when you are looking at how to raise your credit score, the simplest way is to get out of debt.
Here are a few ideas to help you make more money:
- Just do simple surveys or download money back apps for your use like KashKick
- Consider online tutoring
- Find a side hustle that you can do outside of work
- Read more on the subject of making money:
7. Increase Your Credit Limit
Lastly, increasing your credit limit can improve your credit score.
If you are able to increase limits and budget the same you can improve credit score, as it drops your utilization rate percentage down.
When your credit limit goes up and your balance stays the same, it instantly lowers your overall credit utilization. When applying for a higher credit limit you may get A “hard” credit inquiry, which can temporarily drop your score a few points but will be taken off after 6 months.
Assuming spending the same amount, having a higher limit allows for your credit usage rates to improve, which benefits credit score.
Increase your credit limit. I had a $500 limit in high school, 1000 in college, now up to 5,000 but my budget remains the same, keep balance utilization under 10% of the available balance.
Utilization rate had been my biggest key to building my score despite my relatively younger age.
Final Thoughts on Raising Your Credit Score:
Most of my life, “Credit Score” was a term I thought was just reserved for older people up until high school when my dad told me I needed to get a credit card to establish my credit history.
We went to a local credit union where I signed up for a card designed for beginners with no credit history. We set a $500 monthly limit, which I later increased to $1,000 in college.
The card itself had a horrible interest rate of around 19%, which motivated me to never be late on a payment (perhaps the only benefit of high interest). Needless to say, I had always heard growing up credit cards were terrible and should only be used in dire situations!
Dave Ramsey (Total Money Makeover book) advises against credit cards because most people aren’t fiscally responsible and are often tempted to spend more his philosophies may be sound advice, but if responsible opening a credit card young can have its advantages when it comes to your credit score.
However, credit cards are typically the #1 reason why most people who have a poor credit score are in that situation, so be mindful with credit cards – they're not always worth the free sub!
These tips should help you get started in raising your credit score whether you start now or you started when you were young!
Raising Your Credit Score? My Journey in Screenshots:
The topic of how to raise my credit score interested me as I strived to achieve my goal of an 800 FICO Credit Score before 30! While studies suggest many fellow millennials report bad credit card scores, many of my friends have asked me for tips, which inspired this blog post on Money Life Wax!
Also, to help you, here are some screenshots from my journey and what I learned:
JD grew up in Des Moines, Iowa and ran college track before transferring to Iowa State to finish out his college career. JD claims he got his “Frugality” from his dad who also taught him about credit cards, saving money, and building credit. Personal finance is a passion for JD and he has an enthusiasm for finances. He regularly contributes to his workplace Roth 401k his personal Roth IRA, and loves finance apps such as Robinhood, Personal Capital, and Credit Karma! In his spare time, JD is an avid runner/biker!