Raise Your Credit Score with These 6 Tips

Credit scores are mysterious. If you miss a payment, your credit score will likely drop... but it's impossible to know by how many points. That's because our scores are made up of several factors. FICO (Fair Isaac Company) is the most commonly used credit scoring system - see our pie chart on the right for a quick overview of how they determine a score. If you're looking to improve your score, the good news is there are specific actions you can take.

1. Reduce Debt Load

   How much you owe contributes 30% to your credit score; therefore, it will improve by reducing your overall debt load. So work on paying down and paying off your debt to increase your score. This will take time, but is important.

2. Avoid Reaching Credit Limits

   If you can stay away from your credit card limits, that will help, too. (Again, what you owe makes up 30% of your total credit score.) The closer you are to the maximum available credit, the worse it is for your credit score. So keep your balances low and pay off your debts as soon as possible.

3. Old and New Credit Accounts

   Your payment history is 35% of your score (the biggest piece of the credit pie). You might think that you should just remove old accounts that are paid in full. But that will actually negatively affect your score. Paid off debts are positive items which show good credit history. If you already have several credit card or store accounts, avoid opening more. Opening new accounts in a short period of time will lower your score, while a large number of accounts with balances on them will likely negatively affect your score.

4. On-Time Payments

   Whether you make your payments on time, late, or miss payments, that affects your payment history (part of that 35% in #3).  So set up auto-payments or reminders in your calendar when payments are due. If you have missed payments in the past, get current and stay current on them.

5. Don't Ignore Student Loans

   Sometimes student loans can be the forgotten debt, but they're just as crucial. Late payments on any reported debts will bring down your score. If you are having trouble paying your student loans, contact your servicer to determine your options to get or remain current on payments or visit Student Loan Borrower Assistance.org for more info.

6. Take Care of Bad Debt

   Old debts that you forgot about and/or never took care of are harming your credit. Be sure to pull your credit report for free (once a year) from AnnualCreditReport.com. (Because of COVID, the three bureaus are now offering free weekly online reports through the end of 2023.) Review it and work on paying off any collection debt/past due debt that you owe because this is part of both your payment history and what you owe.

Need a kick-start to pay off your debt? Call LSS for your free session at 888.577.2227 or get started online today. Our certified financial counselors will create a realistic budget with you and provide a plan with actionable steps to take to pay off debt.

Author Elaina Johannessen is a Program Director with LSS Financial Counseling.