How to Raise your Credit Score
I wasn’t always good with money. Coming from not having any, I didn’t have a very good grasp on how to handle my finances. I didn’t know what credit was and I didn’t care to. I had a car repossessed, a bank account overdrawn and several other “dings” on my report. All this before I was 21. As we all know, everyone makes mistakes and we all have the opportunity to learn from them. I’d like to pass my personal experience on so that maybe you, or someone you know, that needs help in this area, can learn from my mistakes as well.
I went to get a loan on my first vehicle at 19, and I was denied. My credit score was around 500. I wouldn’t qualify for financing on a plastic ring from the gumball machine. I had two delinquent bank accounts, a repossessed car, a phone bill and a charge from an apartment I had previously lived at on my credit report. There was no way I was getting this car without a co-signer. This was the first time I really cared about a credit score and I was determined to fix it.
Luckily, I found a co-signer and bought a $5,000 car. I made all the payments on time until it was paid off. While I was paying on it, I also called all the people I owed money to and made deals with them to lower the amounts owed and got them paid off as soon as I could. The phone bill fell off my credit since I was only 13 at the time it was set up. A year or so later I tried to buy a cheap truck and my score was still too low. Again I needed a co-signer and did the same thing. I made all the payments on time and while it helped some, my score was still terrible.
Eventually, I got desperate and took some advice from the bank I was currently using. I went and got a loan from one of those little payday loan companies thinking it would help build my credit. Let me tell you, getting a loan from one of those is the absolute worst decision you can make. The interest rate is ridiculous. I think mine was like 128%. A complete waste of money in every way. They don’t even help your credit unless you pay them out over very long terms, which costs ungodly amounts in interest. Thanks for the advice, Bank I Shall Not Name! Want to put yourself in a hole you’ll likely never get out of? Call up a payday advance or small loan company. Finally, I decided to try out a credit card. Before we get to that though here are the impacts various things have on your credit score.
- Credit Usage- makes up to 30% of your credit score – This is based on your used credit vs your available credit. The higher the percentage the more impact it has. So make sure you keep your credit cards paid off. This is recalculated monthly, so if you are buying something make sure you aren’t carrying a balance. Also, the higher limit your cards are the better impact this has on your score.
- Payment History – Self explanatory, pay your bills and on time
- Derogatory Marks- accounts in collection, liens and bankruptcies
- Age of Credit – This is the average amount of time you’ve had all your open credit accounts. Open new ones, the average age drops, and so does your score.
- Total Accounts – The more accounts you have the better you look to lenders. It allows them to get a better idea of how well you pay your bills. Don’t open a ton of new accounts though. The average age of credit has a more substantial impact than this.
- Credit Inquiries- I have over 12 of these on my report from when I bought the Ice Cream store and house, they have a pretty minimal impact on your score. Don’t go crazy applying for everything you see though!
If you are not good with your money and cannot practice self control then ignore this entire section!!!
Getting a credit card has been one of the best financial decisions I have made. It is the main reason my credit score is over 800 now. Most of what you’ve heard about credit cards probably isn’t true. They aren’t the devil, they won’t put you in debt and they won’t wreck your credit (again, read the bold print above). If you don’t own a credit card you are throwing money away. Most rewards cards give you 1% to 3% cash back on all purchases. The card costs nothing depending on the one you choose and you don’t pay interest on it unless you hold a balance. Free money! Here’s what you do:
- Get a rewards card
- Put everything on it that you planned to buy anyway (bills, food, etc…)
- Pay it off completely monthly (I paid mine twice a month starting out because my limit was low. You don’t want to go over your limit!)
It’s that easy! Hold the same card for months and watch your credit score soar. This is by far the best way to raise it. It costs you nothing and actually saves you money with the rewards. Not to mention it is also the fastest way to raise it. Again, this does not work if you aren’t responsible. You cannot buy things you can’t afford to pay for. The interest rates are outrageous and any benefit of the card is lost. You MUST pay it off in full, monthly. Never carry a balance. You do not need to pay interest to raise your score. My recommendations are the Chase Freedom or Sapphire. The Freedom offers great rewards with no yearly fee, the Sapphire is similar, but if you travel a lot the point rewards are better. The Sapphire carries a $95 a year fee. Are the rewards worth while? Well, I am taking my girlfriend to Italy and my total out of pocket expense is ZERO! We booked our flights and hotel rooms using nothing but points. Points I got for doing nothing other than paying for stuff I was going to pay for anyway. Check them out and raise that credit score!