Brandi Regan’s financial path may sound familiar: some credit card debt that went into collections, followed by $30,000 of student loans for a degree she hoped would lead to a great paying career.
She vowed to turn her situation around and get ouf of debt. A friend told her about Credit Sesame. She signed up for a free membership and found her credit score was in the low 400’s.
How She Raised Her Credit Score
After downloading the Credit Sesame app and following the tips, she improved her score by 217 points.
Your credit score doesn’t matter unless it’s bad. When it’s bad, you need to do something about it – take action and try to improve your score.
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What Credit Score are You Aiming For?
The most common credit score, the FICO score ranges from 300–850. If you have a score below 650, you may find it difficult to open new lines of credit or that it costs you more for things like car loans and mortgages.
Having a poor or bad credit score is like failing a class, to graduate you need to improve to pass.
There is no need to go crazy and shoot for the A. As an adult you have lots of other things on your plate but you should at least aim for passing. This means you want a score above 650 and ideally above 700.
When Alex O’Brian was 18 he found out his credit score was in the 500’s when he went to apply for a car loan. Now his score is over 800! Keep reading to find out how he did it.
At this point, you may be thinking a credit score is just number, but how is that number calculated?
Your credit score factors in several things. By focusing on these areas you can watch your score go up.
- Credit Utilization – how much of your credit lines are you using?
- Payment History – do you pay your bills on time?
- Credit Inquiries – how many hard checks have you had on your credit recently?
- Credit Age – what is the average age of your accounts?
- Account Mix – do you have different kinds of credit?
Your credit utilization and payment history have the biggest impact on your credit score.
Tools to Help You Evaluate Your Credit Score
So how do you figure out what areas you need to improve, so that you can raise your credit score? Rather than digging through one of your credit reports or doing the math to figure out your credit utilization you can just use a site like Credit Sesame.
Credit Sesame allows you to sign up and get a free credit score report card and an unofficial credit score. You simply go to the site, enter your email address and some personal information to help them pull your credit information so they can put together your credit score report card.
On the card, they give you a grade, A-F, on each of the factors used to calculate your credit score. This allows you to easily see what you’re doing well and what areas need improvement. They will even provide tips on how you can improve your credit score.
Now that you know what areas you need to improve on to raise your credit score it’s time to take action to get a higher score. Here’s how you can improve on each factor used to calculate your credit score.
1. Credit Utilization
Your credit utilization primarily relates to your high revolving debt, such as credit card debt. For example, if you have a credit card with a limit of $10,000 and you have a balance of $2,500 then you have a 25% credit utilization.
People with good credit scores keep their credit utilization below 30%. People with excellent credit scores keep their utilization below 10%.
So how do you lower your credit utilization? There are two ways.
First, pay down your debt. If you are carrying a balance on your credit card, try to pay it down. If you pay off your balance each month, that’s great. But you could still have a high debt utilization if you max your card out each month.
The second way to lower your debt utilization is to get a higher credit limit. Take our example from earlier. If you get a higher credit limit, say $20,000 that same $2,500 balance is now representing only a 12.5% credit utilization.
As you pay down debt, you may see your credit providers automatically extending your line of credit. The higher credit lines can help you to raise your score faster.
Tip: if you are going to ask for a higher credit limit, make sure you are likely to get the higher limit. Typically if you ask for an increased credit limit your credit card company or bank will likely run a credit check.
A hard check on your credit can reduce your credit score by a few points over a short period. However, lowering your credit utilization will more than make up for the few points from a hard credit check.
Action Point: Pay off debt or raise your credit limit
2. Payment History
Paying your credit card bill, auto loan, mortgage, and student loans on time are key to increasing your credit score.
Make sure you make all your payments on time from now on. With time, your credit score will improve. Even if you just pay the minimums, never miss a date and our credit score will thank you!
Action Point: Make on time payments
3. Credit Inquiries
Credit inquiries refer to hard checks on your credit. These typically occur when you apply for more credit either through a new loan (like a car loan) or a credit line increase.
However, they can also result from requesting an insurance quote or applying for a new apartment. Try to keep from having too many hard checks done within a year.
If you absolutely must get a car, when you’re shopping around do it all at once within a week. Credit bureaus know that you are likely shopping around for the best rate and not actually looking to get six car loans. The bureaus will count all these checks as one check rather than six.
Action Point: If you must have a hard check on your credit score keep them to a small window of no more than one or two weeks.
4. Credit Age
You can keep your credit score good by not opening new accounts. A new account will bring down the average age of your accounts.
For example, if you have one account that is ten years old, one that is five years old and you open a new account, the average age of the accounts would be five years. However, if you open two new accounts, the average age would drop to 3.75 years.
Action Point: If you must open a new account, keep it to one account, but try to avoid opening any while you work to raise your score.
5. Account Mix
Your account mix refers to the types of accounts you have. For once, your student loans could be helping your credit score. If you have a credit card and a student loan, then you have two types of credit.
By keeping your accounts in good standing and making on-time payments you are demonstrating that you can be responsible with different kinds of credit.
Action Point: Be happy you have those student loans, if that is the only credit you have. Try getting a secured credit card to diversify the types of credit you have.
Errors can also have a huge impact on your credit score, and they can easily be corrected.
If you have an error on your credit report you can dispute it. O’Brien contacted the credit bureaus to fix an error and within 30 days his score increased by 100 points.
Follow these instructions on how to dispute an error on your credit report.
Tracking Your Score
Once you start taking action to improve your credit score, make it habit to track your progress. Credit Sesame will show you how you progress.
The more you progress, the more motivated you will be to keep going and improving your score!
What to Do Once You Have a Good Credit Score
Once you have a good score, you will likely have access to greater lines of credit with the best interest rates.
Lower interest rates can save you tens-of-thousands of dollars over your lifetime.
Especially when it comes to mortgages which can take decades to pay off.
To keep that new score high make sure you aren’t using too much of the credit available to you.
Brandi is on track to get to a 700 credit score by sticking with her plan.
If you’re ready to improve your credit score, check out the free Credit Sesame app to get started.
Disclaimer: Some of the links in this post are from our sponsors. It’s how we make sure the office cats aren’t getting the cheap cat food.
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