How to Improve Your Credit Score

By Craig Ford on 16 June 2010 11 comments

There is such a thing as spending too much time, effort, and energy on trying to improve your credit score. Yet, if by following a few simple steps it can help you improve your financial situation and your credit score, then it makes sense to try to boost your credit. (See also: 10 Surprising Ways to Negatively Affect Your Credit Score)

Despite the claims of people like Dave Ramsey, FICO scores matter. Your credit score may impact your insurance rates, home loan rates, credit card rates, and even if you can get a cell phone (without a deposit).

Tips to Improve Your Credit Score

Get a copy of your credit report and credit score

You can get a free copy of your credit report, but expect to pay for your credit score. However, for most people, you can get a good idea of your credit score for free from Credit Karma.

Review your credit report

It is important to verify active accounts and other facts that have been reported on your credit report. If there is a charge that is not correct, you will need to contact a reporting credit agency. Let them know that an item has been inaccurately reported on your credit report, and give them the necessary proof. They are then required by law (if it was inaccurately reported) to remove the item from your credit report within 30 days.

Set a budget and make payments on time

The biggest positive influence on your credit score is your ability to make payments on time. Learning how to make a budget that helps you live within your income is the key. If ou’ve never set up a budget, just be sure to put a name on every dollar. Your money should have a purpose and a mission. It is the budget that dictates where every dollar goes. Once the budget is set, you could use something like the envelope system to help you live within your means.

Use credit cards sparingly and pay off the balance in full every month

One of the best ways to improve your credit score is by using credit cards and paying off the balances in full every month. Dave Ramsey claims your credit score is an “I love debt score,” but I disagree. Your credit score reflects how you interact with debt. If you are responsible with credit, your score improves. If, however, you really just love debt and don’t responsibly handle your debt, then your score goes down.

The reason credit cards are a great way to build credit is that you only need to interact with debt instead of going into debt. If you use credit cards, you can have no debt and a good credit score.

Credit Score Cautionary Notes

Avoid sneaky tips and tricks

It is not unusual for articles on how to improve your credit score to introduces secrets, tips, or insider tricks. The fact is that there is no fancy footwork required. Simple and disciplined personal finances coupled with a basic understanding of how credit scores work is all that is required.

Go for a better financial situation — not a better credit score

While you might be taught to build credit for credit sake, I suggest that you only do activities that improve your financial situation and your credit score. At one point in my life, someone suggested I buy something with a credit card and pay for it over a three month period — just to build credit. I said, “No, thank you.” If at any point doing something builds your credit score but does not improve your personal financial situation, then do what is best for your finances, not your credit.

As a positive example, if you can get on a plan where you learn how to pay off credit card debt, this will help your financial situation and your credit score.

Don’t blindly build credit for credit’s sake.

Choose financial peace over a credit score

Some people have debt allergies. The idea of having a credit card or any debt makes them extremely uneasy. In those cases, there is no need to interact with credit because of the emotional cost.

For example, when considering if you should pay off the mortgage or invest, you should know that paying off the home would (eventually) likely result in a lower credit score. Nevertheless, some people just feel better about the idea of paying off the house. In this case, do what brings financial health and peace — not an improved credit score.

What do you do to build your credit score? Any other tips on how to build credit?

No votes yet
Your rating: None



Guest's picture

For me, all you have to do is keep your money and debts on track and pay religiously. That is the most effective way on improving your credit score. I experienced that and I can say that it really pays off to be a disciplined person. If people are disciplined and knows what their priorities are, then bad credit score won't be a big issue really.

Guest's picture

In our crazy world (in which many have already defaulted on their mortgage payments) our credit scores go DOWN when we pay off our home loans?

I know that when I was going to re-finance earlier this year they tried to tell me that I didn't have enough open credit and that it affected my credit score (which was somewhere in the neighborhood of 700+). They told me that I should OPEN A COUPLE OF REVOLVING CREDIT ACCOUNTS to raise my score! Don't you idiots see (or care) what got us into this mess in the first place?

For the record I have never missed a payment in 25 years as an adult, I have a decent salary, and I only have two loans right now (house and wife's student loans). If I don't have the highest credit score possible something is deeply wrong with this system.

Guest's picture

Adam, they mean having "good credit" meaning a card you pay off monthy and have had for a while. Financial advisors are quick to tell you to cut up all the cards, but you actually need them in order to build your credit.

Guest's picture

These are great tips. Having good credit is so important, so this advice is so vital for your entire life.

Guest's picture

A credit score is a mathematical calculation of your credibility. It tells lenders whether or not to take a financial risk on you. Always keep in mind credit reflects credibility. Pay your bills on time. Keep the same residence and job. Maintain checking and savings accounts. Visit and read the article A CREDIT SCORE REFLECTS CREDIBILITY for some great tips on building or improving your credit rating.

Guest's picture

Good one Craig. It's really a very simple post which describes the facts of credit score.I found all the basic things that to be needed to have a good credit score which ultimately leads towards a financial freedom

Guest's picture

Find out your credit rating today from

Guest's picture

I am definitely working on building up my scores now. I have been looking for tips on how to and also looking for a new credit card to start with. Thank you Craig, this was very helpful.

and for anyone whos also looking for a new credit card... i found this article that helped me.

Guest's picture

These are great cautionary tips about credit scores. I think the biggest issue with people managing their credit scores is simply not understanding what makes it up. Robin Holland, a blogger for Equifax, explains the "credit score recipe" really simply:

Guest's picture

Definitely worthy of a best-of. I get so many questions on this. I'm working on a guide for my own website, and I'm going to include a link back to post.

Guest's picture

The biggest and easiest way I have improved my credit score was by calling each of my credit card companies and asking for a higher limit. Usually if you make something up, like "I'm getting married in a few months" or "My best friend is getting married over seas and my wife and I are in his wedding", they tend to increase your limit. This is turn will increase the amount of debt you can have, which will increase your credit score.

But like you said, you have to aim for a better financial position and not just a better score. Getting out of debt should be the end goal, not figuring out how to prolong being in debt.