Raise Your Credit Score in 7 Steps

by Laura Adams

You probably know that your credit score affects your ability to get a loan or credit card, but did you know it can affect your ability to rent a home, get affordable insurance, qualify for government benefits, and even land a job? Credit scores have a surprisingly far-reaching effect and can influence many aspects of your life, but unfortunately many people don’t realize that until it’s too late.

A good credit score can save you money, but having a poor credit score is expensive. Here’s why: Let’s say an unimpressive credit score causes you to pay just 1% additional interest each year on a $200,000 fixed-rate mortgage. That could cost you over $45,000 in extra interest over 30 years. If you invest that money instead, it could mushroom into more than $140,000, even with a moderate 7% annual return. Don’t believe me? Use the MyFico Loan Savings Calculator to find out how much interest you could save by simply increasing your credit score.

It’s time to stop underestimating how important credit scores are for achieving financial success. Here are seven steps to boost your credit score as fast as possible:

Step #1: Correct Credit Errors

Since your credit score is calculated from the information in your credit report, you need to check your report regularly for errors – and correct or dispute credit errors you find. You can download a free copy from each of the three credit agencies—Equifax, Experian, and TransUnion—once a year at annualcreditreport.com.  This site will not give you your credit score, but you look at how to get a free credit score through a MyFico.com trial or through Credit Karma.

One of the quick and dirty tips that I give in my new book, Money Girl’s Smart Moves to Grow Rich, is to space out your requests so you get a report from a different agency every four months. Read the entire report, look for mistakes in your personal and financial information, and report any errors to the credit agency right away. By the way, checking your own credit report doesn’t damage your credit score.

Step #2: Get Current on Late Payments

A component that makes up a big chunk (35%) of your credit score is whether you pay your bills on time or not. Get caught up on any overdue payments and stay current with all your bills. Never let an item go to a collections agency because it will linger on your credit report for seven years, even if you pay it off.

Step #3: Reduce Credit Card Balances

Having a large amount of credit card debt relative to your available credit limit is a drag on your credit score. Never let your “utilization ratio” exceed 30%. By that I mean if you have a $3,000 credit limit, don’t allow your balance to creep up over $900 (30% of $3,000)—even if you pay off your balance in full every month. You’re better off having two credit cards that each have balances below 30% of their limits than one card that’s maxed out.

Step #4: Use Older Credit Cards

Though you should keep a lid on your credit utilization, don’t forget about an older card that you haven’t used in a while. Instead of canceling it, keep it active by making occasional charges that you pay off in full. That helps your score by lengthening your credit history and by increasing your available credit.

Step #5: Get a Mix of Credit Types

Though you’d be wise to avoid credit cards if you’ve gotten into trouble with them in the past, not having one can hurt your credit score. Having both credit cards and installment loans (like a mortgage or a car loan) and managing them responsibly will boost your credit.

Step #6: Open New Credit Accounts Slowly

It’s a fact that you need a mix of credit accounts to build up a solid credit history—but don’t overdo it. Opening too many new credit accounts will ding your score because they lower your average account age. Also, a rash of new accounts or credit inquiries that appear within a short period of time on your credit report looks risky to a potential creditor.

Step #7: Do Your Rate Shopping Quickly

When you’re searching for a new loan or a refinance, make all your applications to lenders within a two week period. In general, having multiple inquiries on your credit report is harmful; however, it isn’t counted against you when you’re obviously shopping for a particular product like a mortgage or a car loan within a short time frame.

Following these seven steps won’t give you perfect credit overnight, but they can make a big difference in as little as two or three months. It comes down to managing your bills and credit accounts responsibly over time so you demonstrate a pattern of good financial behavior. Any company or individual who says they can “fix” your credit or erase bad marks on your credit report probably also has swampland in Florida to sell you.


Published or updated July 12, 2016.
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{ 6 comments… read them below or add one }

1 Mark

Great explanation of how poor credit costs you quite a bit more in the long run. I feel that way too many people do not consider this. I didn’t know about #7 so great tip there.


2 Jon the Saver

Ah man, I’m such a good example of what NOT TO DO. I opened up three credit cards in a short period of time because I lusted after the rewards. It was for airlines and hotel stays. Anyways, definitely learned my lesson. If you’re reading this, space out your credit card accounts, my score went from 760 to 740!!!


3 Briana

Great tips! I’m going to focus on reducing my balances, as I’m sure that’s why my score is lower than I’d like it to be.


4 Craig

Thanks for the advice. I recently filed bankruptcy and have a very low credit score. On a positive note, a new business idea came out of the experience and the future is looking bright. Hopefully soon my credit score will be back to where it once was.


5 Mel

That was very helpful. However, are there ways to restart your credit? I read that if you have a small business–that has its own EIN–you have an opportunity to establish credit in the name of your business. If that’s true wouldn’t you have to give your social security number (as the business owner) AND the business EIN? Thanks!


6 Ryan

Mel, there really isn’t any way to “restart” your credit, though many people who are selling something might want you to believe there is.

You can establish and build credit for a business using an EIN. There are a couple ways you can do this, including first opening a business bank account with a local bank, then establishing a line of credit through the bank. You can also get a Dun & Bradstreet number for your business and begin building a credit profile with them (though setting up a profile through them can be very expensive). It’s important to note that if you don’t have an established line of credit for your business, you may have to give your personal SSN in order to be approved for a business credit card – in this case, your personal credit profile may be affected by your business activities. If you have an established line of credit, you may be able to use a business credit card solely through the EIN, and keep the card and your activities separate from your personal credit profile.


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