How to increase your credit score

Talking about credit scores, what they are, why they’re important, and how to maintain healthy ones, is still somewhat taboo in our day to day lives. Outside the world of finance, credit scores are seldom talked about and often avoided until they become a problem.

For most young people leaving school, your credit score is the last thing on your mind when you’re just starting out in the world. Fast forward to your mid-twenties or early thirties, as you’re trying to buy your first home, finance an automobile, pay for a wedding, or even book a hotel and you soon realize that your credit history impacts many of the major life decisions you make.

What is a credit score?

For the completely uninitiated, simply put, your credit score is a three digit score which summarizes your credit history and gives a lender information about how safe, or risky, it is to lend you money. If you use credit responsibly and pay it back in a timely and reliable fashion, your score goes up. If not, it tends to go down. Maintaining a good credit score is important because your cost of borrowing can be dramatically impacted by it.

For this reason, and others, it’s important to establish and maintain excellent credit history throughout the course of your life.

Here’s some helpful advice to keep your credit score in good shape:

1. Your payment history is the most important factor in your credit score.

   • Always make your payments on time OR early if possible.
   • Make at least the minimum payment if you can’t pay the full balance.
   • Contact the lender right away if you think you’ll have trouble making the payment on time.
   • Don’t ever skip a payment, EVEN if the bill is in dispute – its better to get a credit to your account rather than having a late payment recorded.
2. Try to underutilize your available credit.
   • Don’t go over your credit limit, borrowing more than your authorized credit limit will lower your credit score.
   • Try to use less than 35% of your available credit. If you use more lenders may see you as a greater risk – even if you pay your balance off before the due date.
3. The longer you have a credit account open, the better it is for your score.
   • Keep older credit accounts open, even if you don’t need it - Use it every once in a while, to keep it active.
   • New credit accounts can lower your credit score.
4. Avoid multiple unnecessary credit checks.
   • Limit the number of credit checks by getting quotes from different lenders within a two-week period – this way your inquiries will be treated as a single inquiry on your credit score.
     • Hard hits vs. Soft Hits:
       • Examples of hard hits:
         • Application for credit card
         • Rental application
         • Employment applications
       • Examples of soft hits:
         • Requesting your credit report
         • Businesses asking for your credit report to update an existing account you have with them

Used wisely, credit can be a very useful tool in your life. It can help pay for education, start a business, build a home, and get you out of a pinch. If misused or left unattended, credit can become a source of constant stress and friction that impacts relationships and mental health. 

A good credit score is more than just numbers on a screen, it’s an important part of your journey to greater choice, freedom and opportunity in life.

If you need some help improving or establishing credit, or you have a question that wasn’t addressed in this article, please reach out. We’re here to help.