How to Improve Your Credit Score – 7 Easy Steps to a Better Credit Score

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You credit history affects your credit score
Having a strong credit score is one of the most important things you can do to help control your finances. Your credit score is used every time you apply for a loan, to help determine interest and insurance rates, for background checks when you apply for a job or for renting a house, and even…

Having a strong credit score is one of the most important things you can do to help control your finances. Your credit score is used every time you apply for a loan, to help determine interest and insurance rates, for background checks when you apply for a job or for renting a house, and even when you want to enter a cell phone contract.

Your FICO score is determined by a calculation based upon your credit payment history, amounts owed, length of credit history, new credit, and types of credit. Now I will share some ways to improve your credit score.

This chart breaks down the components of your FICO score by importance:

Credit Score Breakdown

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.

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.

How to Improve Your Credit ScoreIt’s time to stop underestimating how important credit scores are for achieving financial success. Here are key steps to boost your credit score as fast as possible:

How to Improve Your Credit Score

There is no magic reset button to increase your credit score. Improving your credit score is all about doing the right things over a long period of time. But there are some ways to make quick improvements. Look back at the chart above and try to focus on the areas that have the largest impact on your credit score. Following these steps will also help you improve your credit score.

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  This site will not give you your credit score, but you look at how to get a free credit score through a trial or through Credit Karma.


To vive yourself more access to your credit history, 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 – Improve Your Payment History (Get Current on All Bills!)

Your payment history comprises 35% of your credit score, so it is important to make your payments in full and on time. Delinquencies will have a negative impact on your score, and any loans that go to collections can stay on your credit report up to 7 years or longer – even if they have been paid in full. There is good news though. The longer you pay your bills on time, the more positive the effect on your credit score.

  • To improve your credit score: Concentrate on making your payments on time, every time. If you feel like you might have a problem meeting your payments on time, call your lender and try to work out an arrangement where they can get their money and it won’t affect your credit score. Some lenders are willing to work with borrowers when given the chance.

Step 3 – Pay Down Balances to Improve Your Credit Utilization (Amounts Owed vs. Available Credit)

The amount of money you owe makes up 30% of your credit score. Lenders look at your total available line of credit and ask this question: “worst case scenario, how much money can they borrow, and would they be able to pay it all back?” Some of the important factors to consider include the total amount of money owed, available credit, the amounts owed for each type of account (secured debt and unsecured debt), number of accounts with balances, proportion of available credit used, and proportion of installment loan remaining vs. starting balance.

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 $10,000 credit limit, don’t allow your balance to creep up over $3,000 (30% of $10,000)—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.

  • To improve your credit score: The most important thing you can do is pay down your debt to reduce the amount you owe. Next, try to keep your revolving credit balance low (such as credit card debt). Another tip is to close or reduce available lines of unused credit. For instance, if you have an unused HELOC or other available credit line that you aren’t using, you may improve your score by reducing the amount you can borrow. However, be careful opening or closing too many accounts to try and raise your score – the opposite effect could happen if you make several major changes in a short period of time (see the next two items for how closing your accounts could backfire).

Step 4 – Keep Credit Accounts As Long As You Can

Lenders want to lend money to people who have consistently shown the ability to repay their loans. The longer you have proven your ability to repay loans, the more favorable you look in the eyes of the lender. The average age of your credit accounts makes up 15% of your credit score. Be careful opening too many credit accounts at once because that can lower your average age of credit. This is even more important if you have only recently established your credit history.

Instead of canceling old credit cards, keep them 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.

  • To improve your credit score: Do not close old credit accounts. If you do not need the line of credit any longer, ask the company to reduce the available line of credit to the minimum and cut up the card and don’t use it anymore. This reduces the temptation to continue using the card, but you retain the benefits of keeping the old line of credit in your credit history. If the line of credit is newer, it may not hurt to close the account, and could even help you if closing the line of credit increases your average age of credit.

Step 5 – Don’t Open Too Many New Credit Accounts Right Away

New credit makes up 10% of your credit score. Opening several lines of credit in a short period of time, or making a lot of credit inquiries in a short period of time, can have a negative effect on your credit score.

Having a mix of different types of credit accounts can help build a solid credit history (see next step)—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.

  • To improve your credit score: Try not to open too many new credit accounts in a short period of time. It’s also a good idea to keep old accounts open, so long as you don’t have to pay any fees to do so.

Step 6 – Open Different Types of Credit Accounts

There are several types of credit, and lenders like to see that you have the ability to handle them equally well. The types of credit you have makes up 10% of your score. Having both credit cards and installment loans (like a mortgage or a car loan) and managing them responsibly will boost your credit. Secured loans, such as a mortgage or a car loan, can be viewed as better than unsecured loans, such as credit card debt.

A consumer credit card from a major bank is much better for your credit score than a store credit card. At the bottom of the heap are sub-prime loans, such as pay day loans and title loans (these can be terrible for your credit score because they are high risk and are a sign the borrower couldn’t get approved for a better loan elsewhere). And contrary to popular belief, you do not need a credit card to build credit history.

  • To improve your credit score: Try to maintain a mix of installment loans (such as a car payment or mortgage) and revolving credit (such as a credit card). This shows lenders you are capable of making regular fixed payments, as well as maintain the ability to regularly make charges and pay them off. Having a mixture of secured and unsecured loans can also affect your credit score. Do your best to avoid predatory or sub-prime loans such as payday loans, title loans, and similar loans.

Step 7 – Bonus Tip: Make Credit Inquiries in a Short Time-Frame

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.

Try to do all your interest rate shopping or open new accounts in a short period of time. For example, if you are shopping for a mortgage or car loan, try to do it all in the span of a couple weeks instead of dragging it out over months.

Checking Your Own Credit Score Shouldn’t Impact Your Credit Score

Checking your own 3 free credit scores will not have a negative impact on your scores if you get a copy of your credit score from an authorized agency such as the three major credit bureaus – EquifaxExperian, and TransUnion, or from where you can get all three at reports once. MyFICO is also the company that created the FICO credit score. It is important to note that it is OK to open new lines of credit if you need to reestablish your credit history, just be sure to pay off your new loans on time. Try to limit the number of new credit accounts you open in a short time period.

There is No Quick Fix to Improve Your Credit Score

Following these 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.

Remember, the most important thing is to make regular payments and to reduce your amount of debt. You can also consider consolidating accounts, reducing the amount of available credit you have, leaving your oldest credit lines open, and having different types of credit (installment loans, revolving credit, secured loans, unsecured loans, etc.).

Keep in mind that closing your credit accounts does not remove them from your credit report or your credit score. Closing the accounts is fine, but you have to consistently pay your remaining loans on time to improve your credit score.

Finally, only open new credit accounts when needed. This will limit the amount of available credit you have, reduce the number of new accounts in your name, and help keep the average age of credit up – all of which are important elements to your credit score.

You can get a copy of your credit report free, through the MyFICO website, or from the three major credit bureaus – EquifaxExperian, and TransUnion.

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. David says

    Why don’t you tell people with a bad credit score how to get a job so they get the credit score up? With economy down so bad along with short sales, foreclosures, while a lame duck president that’s helping to lose more jobs, and the market keeps going, lets get action going to remove the credit check out of the hands of employers for honest people who are having bad luck, trying to get back on their feet

  2. Kathy Owens says

    This has been very awakening and helpful to me…………Great to learn so much…I now feel more confident in improving my credit score….I had no idea that the length you’ve had your credit card was even a factor in a higher credit score. I had planned on paying off my oldest credit card (after 15 yrs.) and closing the account because it keeps being bought by other companies or banks and the interest rate goes up each time….So now I know to pay it off as planned, but keep it and NOT use it. Thanks so much for the info.

  3. Mel says

    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!

    • Ryan says

      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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