Your credit score is crazy important. It drives a lot of your financial life. It determines what kind of credit cards you can qualify for. It also determines what type of interest you pay on personal loans and car loans. It can even impact where you live because your credit score gets pulled for things like rental applications & mortgage applications.
So how do you improve your credit score? Its actually pretty easy to do.
Below you’ll find 10 different life hacks to improve your credit score. But first lets do a quick refresher on what makes up your score.
What Is A Credit Score Exactly?
Your credit score can go from 300 to 850. Anything from 750-850 is considered great. When you’re hacking your credit score you need to focus on the big buckets. Here’s exactly how your score is calculated.
- 35% for Payment History
- Pay your bills on time, even the minimum, and you’ll get a good score here. The longer you’ve made payments on time the better your score
- 30% for Amount Owed
- Owing a lot of money isn’t necessarily a problem. Utilization ratio looks at how much credit you use vs how much you have available. As long as you only use a small portion of what you have available you’ll get good marks.
- 15% for Length of Credit History
- Credit history looks at your oldest account, your newest account and the ‘average age’ of all your accounts. Having some old accounts and a high ‘average age’ is usually better.
- 10% for New Credit
- Opening a bunch of new accounts at once is a bad sign. The good news is that this goes away after about 12 months. So if you’re going to open some new accounts, consider doing it all at once.
- 10% for Credit Mix
- Managing multiple different types of credit looks better to the credit agencies. It makes you look responsible. Types like credit cards, retail cards, personal loans, car loans, mortgages etc.
Top 10 Tips For Hacking Your Credit Score:
#1 Keep old credit cards, especially ones with no annual fees. Part of your credit score is calculated based on the length of your credit history and your ‘average age’. If you close down old credit cards that history goes away and your ‘average age’ goes down. Have a no-fee credit card is great because you can keep it open for years or even decades without any fees. You don’t even have to use the card, just have it open and available to use. You can even cut it up if you think you’d be tempted to use it.
#2 Make payments on time, even if its just the minimum. Credit cards report to the credit agencies. They don’t report your specific payments (although this is starting to change) but mostly they just report whether or not you’ve paid on time. So make sure you make at least the minimum payment.
#3 Transfer a large credit card bill into a personal loan. The credit agencies like to see different types of loans. If you carry a balance on your credit card then consider getting a personal loan to pay it off. Not only will this save you interest but it will give you better “credit mix”.
#4 Ask for a credit limit increase. Credit agencies don’t like it when you are using a high % of your available credit. This is called the utilization ratio. You can improve your utilization ratio two ways. Pay down your credit card bill or increase your credit limit. Periodically asking your credit card company for a limit increase can help improve your credit score by lowering your utilization ratio.
#5 Get a retail credit card. But put it on ice right away. Retail credit cards usually carry the highest interest rate out there but they are considered a different “type” of credit. Having different types of credit can help your score so considered getting a retail credit card and put it in a block of ice in the freezer. Just having it available will help your credit score.
#6 Open a credit card early and make small purchases. They love it when you make credit card payments on time. They don’t care how much the purchase was though. You can buy a $5 coffee on your credit card once per month for years and it will greatly improve your credit score (as long as you pay off that $5 each month!).
#7 Open new accounts all at the same time. Credit agencies look at the number of inquiries and new accounts in the last 12 months. If you’re going to open up new credit then do it all at once. You’ll take a temporary hit to your credit score but that impact will start to go away quickly. Opening a credit card even 3-6 months will continuously have an impact on your credit score so instead do it like a bandaid, do it quickly and do it all at once.
#8 Consolidate your credit. Having multiple credit accounts with a balance is actually a negative single for your credit score. Having some money owing on all of your cards/loans can be an indication that you’re over extended. Consolidate our credit on one card/loan.
#9 Clean up your credit report. No one is perfect. Everyone makes mistakes. The credit reporting agencies are no different. Sometimes there are things on your credit report that shouldn’t be. These mistakes can have a huge impact on your credit score. You may not even know they exist. Check your credit score at least once per year to make sure some random mistake isn’t killing your credit score.
#10 Get rid of credit disasters like bankruptcy and liens. These are considered “public record” items on your credit report. They can stay on your report for up to 10 years (7 years for chapter 13 bankruptcy). Some of these “public record” items can actually be disputed. Sometimes a collection agency has gone out of business or won’t dispute an item. Send dispute letters to each of the three credit agencies asking them to remove these items. Most of the time they will not but sometimes you can get lucky.
Photo by dydcheung via Flickr