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How to Increase Your Credit Score

There are 5 factors that affect your credit score:

  • Payment history
  • Credit utilization (how much of your revolving debt you are using)
  • Average age of accounts
  • Credit mix
  • Inquiries

What are ways to increase your credit score?

  • Pay your monthly bills on time.
    • Payment history is 35% of your credit score
    • Making late payments can drastically reduce your credit score
    • If you have old accounts with late payments, work with your creditor to bring those accounts to current and start making on time payments
  • Keep revolving debt balances to a minimum
    • Credit utilization is 30% of your credit score
    • The rule of thumb is to keep credit card and line of credit balances under 30% of the total amount of credit limits
    • To calculate your utilization percentage, simple add up all of your revolving debt balances and divide them by your total amount of credit limits
    • A total debt balance of $5,000 divided by at total limit of $10,000 is a 50% utilization rate
    • Having a high utilization percentage will reduce your credit score even if the other factors are positive
    • If you have high balances start a debt payoff plan to reduce your balances, work with your creditors to increase your limits, or open new revolving debt to increase your limit
  • Dispute errors on your credit report.
    • Errors on your credit report can reduce your credit score
    • Review all 3 credit reports and dispute any errors such as payments reported incorrectly or old negative information that should no longer be reporting
    • If you are a victim of identity theft dispute any accounts opened without your authorization
  • Have a mix of credit
    • Creditors want to see that you are using revolving (ex. credit cards) and installment (ex. loans) types of credit
    • If you have only installment loans open a credit card or line of credit to add a revolving debt to the mix
    • If you have only credit cards, open an installment loan to add to the mix
  • Keep credit cards open
    •  
    • If you no longer want to use a credit card, simply stop using the card and put it away in a secure location or cut it up
    • Closing a credit card account will result in you losing the history from that account and reduce your average age of accounts
  • Use a credit builder account
    • If you have a low credit score or no credit at all look into credit builder options such as a secured credit card or Self.inc.
    • These accounts are designed to help individuals build credit from scratch or to rebuild credit
    • A secured credit card is backed by a cash deposit you provide when opening the account
      • Make sure when using a secured credit card you are paying on time and only spending what your can afford to pay off monthly
    • Self.inc is a savings account that reports to the credit bureaus as an installment payment
      • Instead of paying off a loan balance your monthly payments are going into a cd saving account
      • Self.inc offers affordable monthly payments as low as $25 a month for a 24 month term

Family Houston offers free financial coaching to assist with creating action plans to increase your credit score.  We offer a free review of your Transunion credit report and your Transunion FICO score.  Contact Family Houston today. 713-861-4849.