How to Improve Your Credit Score

by Scott Sery on October 22, 2012

Your credit is a huge part of your financial well-being.  If your score is too bad, you will be denied a loan, and the better your credit score is the better interest rates you will get when you get a loan.  While the actual computation of how the FICO score is determined is quite complex, there are ways you can get ahead in the credit score game.  Some tips are simple and easy to do; other tips take a little more discipline and often just time.

The easiest way to improve your credit score is to call your credit card company and ask for a raise in your credit limit.  If you have had the card for more than just a few months, and you have never been late on a payment, there should be no problem in getting your credit limit changed.  The way this helps is that most likely you will not be spending any more than you usually do, so the card company will be reporting that you are using a smaller percentage of your total credit available.  For example, if you charge $1,000 per month against your $2,000 limit, you are using 50% of your available credit.  If you increase your limit to $4,000 you are now only using 25% of your limit.  Your FICO score increases because you now are being responsible and not racking up as much debt as you could.  The other way to accomplish the same thing is to reduce the amount that you charge.

While debt is not really much fun to carry, it can be quite useful.  If you are looking for a new car, and you have the means to buy it outright, consider getting a loan for part of the cost.  Today’s interest rates are low; you can get a 3 year loan for as low as 2%.  Credit scores look at how well you manage revolving credit (credit cards) and installment loans (mortgages, student loans, auto loans).  By having a small installment loan you can help increase your score quite a bit.

Before you go and apply for a loan, however, do an annual credit report check.  If you have always been on time with payments, and notice anything that is marked other than “paid as agreed” or “current” then get it fixed.  The Federal Trade Commission has a web page that will show you exactly what you need to do.  Getting old negatives off (they automatically drop off after 7 years, if not file a dispute), and getting problems fixed will improve your score to where it legitimately should be.

Many of the other ways to get your credit score higher is to simply give it time.  The length you have had credit is one of the biggest ways to increase your score, and keeping that old card open, even if you don’t use it anymore, will help show you’ve had that credit history for the longest period possible.

The credit game is a mystery to most people.  But there are ways you can play the game to make it work in your favor, and many of them, such as raising your credit limit, do not require any change in your spending behavior.  If you have not raised your credit limit, do so now.  The phone call takes about 5 minutes, and you will usually see your limit increase when you log onto your account the next day.

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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website ScottSery.com

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{ 9 comments… read them below or add one }

Kim October 22, 2012 at 9:42 am

I would love to have enough cash that I never had to worry about a credit limit, but that probably isn’t a reality or even very smart, so keeping a high score is essential to what we hope to do with buying rental property.

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John S @ Frugal Rules October 22, 2012 at 9:56 am

Nice tips. I agree that getting a credit increase is generally pretty easy. If you’ve been a great customer, then they’ll usually up your limit.

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holly October 22, 2012 at 10:38 am

These are good tips…but it kind’ve annoys me that they make it so complicated. They take a lot of things into consideration that don’t really make a lot of sense. I don’t worry about it too much….but I hope to never borrow money again.

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TacklingOurDebt October 22, 2012 at 12:03 pm

Having a good credit score is very important. Even if you don’t need to rely on it today, you never know what the future holds. I pulled my credit report this past August and I wasn’t expecting good things. But my score was actually very good. I have never been late on a payment but my debt ratio is high. My score didn’t reflect that.

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CanadianBudgetBinder October 22, 2012 at 1:13 pm

Interesting how it is run that way with the credit score being improved the more credit you get. We always check our credit history each year by ordering or credit report and reading it over. It’s amazing how many people don’t do this to make sure everything in the report is accurate and no one has put cards in their name etc. Great post. Mr.CBB

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Jon Dulin October 23, 2012 at 5:41 am

There was a recent report out that said somewhere in the neighborhood of 70% of credit reports carry an error that results in a lower credit score. With the ability to get a free credit report each year, you are foolish to not look it over and check for mistakes.

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femmefrugality October 22, 2012 at 3:53 pm

I agree with Mr. CBB! We also order ours every year. I found a debt on there that shouldn’t have been (or I was told it wouldn’t be because of a mix-up, but apparently all the right parties didn’t get informed,) so I wrote a goodwill request letter. It worked!

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Sean @ One Smart Dollar October 22, 2012 at 10:46 pm

I think errors are a problem that too many people might not catch because they don’t regularly check their credit. Good job catching that error. It could have cost you down the road.

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DC @ Young Adult Money October 23, 2012 at 5:18 am

Like our mortgage lender told us: keep paying those student loans on time and your credit score will keep going up. A history of making loan payments on time really helps.

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