12 Steps to Improve Your Credit Score

April 14, 2011

Improving your credit score quickly is possible if you’re talking about a small improvement but to raise your credit score significantly you’ll have to put in some effort.

Credit Score Strategy & Tactics

The best long term way to improve your credit score is to make regular timely payments and keep your balances low.  This is a good strategy regardless of whether you’re trying to raise your credit or just be smart with your money.  If you follow this approach year after year then your credit should be pretty solid.

However, there are certain factors that play a big role in your credit score and it does help to pay extra attention to them.  This is where credit score tactics come into play.  If you understand a few key things to watch out for, they can pay off nicely with an even higher credit score, we’ll go through them in a minute.

Of course, if you have bad credit and need to borrow money quickly at the lowest possible rate then the tactics can help you get somewhat of a score boost right out of the gate.

Credit Score Steps

I wrote recently about why a low credit score can be a problem and the factors you can work on to improve your credit score.  I mentioned that David Bach included a series of steps in his book that he recommends for raising your credit score.  Today I’ll finish out my look at “Debt Free for Life” by going over those steps and hopefully you’ll have a good basis for getting your credit score on track.

Why 12 Steps?

The negative to anything that takes 12 steps is that you could be overwhelmed by the idea of 12 things to do and not even start.  If that’s the case, I understand how you feel. 

The time rationing part of your brain might prioritize it to the back of the list.  You think, “12 steps – no time for that right now.  I’ll get to it when I have some free time”.  Of course the problem becomes that block of time never actually frees up.

Another way of looking at it, is that you only have to do one step at a time.  So, if it makes it easier to get started, you could call it a flexible 2 step program.  First do 1 step, then when you’re ready check the list for the next step.  Take as long as you want, keep going until the list is done.

Whatever mental approach works best for you, here are the things Bach recommends you do to raise your score.

1) Check Credit Report Errors 
Read the post on improving your credit score to see how issues with your credit report can impact your credit score and how you can correct them.

2) Automate Bill Pay 
I use online billpay to automate our payments and agree that it almost eliminates late payments.  Since your payment history is the biggest factors in determining your credit score, it makes sense to be sure your payments are sent.

3) Pay Off Missed Payments 
The bad news is that missed payments stick around on your credit history for 7 years.  The good news is that their negative impact decreases over time, so the sooner you pay off outstanding debt, the better it is for your credit score.

4) Keep Your Balance Far Below Your Credit Limit 
Bach uses the example of having a $1,000 balance on a card with a $2000 credit limit.  If your company suddenly cuts your limit in half, then you’re maxed out on your credit utilization on that card and that hurts your credit score.

5) Beware Continual Balance Transfers
Bach recommends against continually opening new balance transfer cards and moving your balance from card to card. He doesn’t explain the logic behind it but apparently having mutiple small balances on several cards is better for your credit score than consolidating all your expenses into one big one credit card balance.

6) Big Spender? Pay Off Early 
If you spend a lot on your card you can make payments before the end of your statement period to help your credit. That’s because the credit card companies report the Amount you owe to the credit bureaus at the end of your statement period.  Even if you pay off your card every month, those agencies are going to see high levels of credit utilization.  Paying off your balance a few days before your statement period helps keep the amount reported to Equifax, Experian, and TransUnion lower.

7) Don’t Close Old Accounts 
If you close old credit accounts it shortens your potential credit history and reduces the total credit available to you – both of which can be detrimental to your credit score. 

8 ) Use Old Cards Occasionally
Banks have been known to close inactive cards.  The impact of the bank closing your card is the same as if you closed the account – it has the same drawbacks that we just discussed above.

9) Show Responsibility 
This one falls under the credit score strategy I described earlier. It’s not a tactic as much as it is an approach to money.  Make sure you don’t borrow too much and pay back what you borrow on time. Only open new accounts when you need them.

10) Strategic Loan Applications
When you’re applying for a car loan or home loan, if you’re going to apply with more than one lender, do it all at once rather than spreading it out over months.  Each of those applications shows up on your credit report. Lots of those inquiries over time could indicate you’re trying to borrow money from multple places, which could mean you’re strapped for cash.  According to Bach, the FICO scoring system is setup to treat multiple loan applications in a short period of time as acceptable, to handle cases like applying with multiple lenders for a home loan.  If you spread out the applications over more than a month it could impact your credit score.

11) Limit “Hard Inquires”
When you check your own credit it shows up on your credit report as a “soft inquiry”, meaning that your credit wasn’t being checked with the purpose of lending you money.  In contrast, when you apply for a loan or line of credit, that creates a “hard inquiry” or a “hard pull” and the credit reporting agencies hold too many of these against you when calculating your credit score.  Make sure you understand the differnce between a soft and hard inquiry, and limit the hard pulls.

12) 3 in 1 Reports & Credit Monitoring
Bach thinks it’s worth your money to sign up for a 3 in 1 report that shows your credit scores from all three major credit burueas and also provides you with identity monitoring.  Based on all the things we’ve covered in the last few credit posts, he feels like your credit score is important enough that the cost of the report and monitoring is more than paid for by the benefits of knowing your score and being able to keep it an eye on it.

Improving Your Credit Score

Bach’s suggestions fall into three main types of categories: information gathering, credit tactics, and credit strategy.

Information Gathering

Information gathering are things like getting a 3 in 1 report, checking your credit report for errors, and using credit monitoring.  They let you know where you stand from a credit score perspective and help you keep an eye on your score.

Credit Tactics

Other recommendations are tactics – such as keeping old accounts open, submitting all your loan applications within a short timeframe, and paying off big balances before your statement period ends.  They’re all based on a knowledge of how your credit score is calculated and following those tips can keep you from getting negative marks that lower your credit score.

In reality they have nothing to do with the health of your finances but it’s good to know about them and make use of them to keep your score higher.

Credit Strategies

The last set of recommendations are more strategic approaches, like automating your bill pay and responsible use of credit.  These help you create long term habits that not only help your credit score, but also help your finances as a whole.

Any of these individually are good steps to take and can help you make progress towards raising your credit score.  The real benefit comes from combining all of these approaches together, do that and you can really see your credit score go up.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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7 Responses to 12 Steps to Improve Your Credit Score

  • Dave Yesmar

    How is this smart money? Guess what rich peoples credit score is? They don’t have one. The credit score you should be wanting to achieve is ZERO.

    • Ben

      @Dave, I agree it would be nice to have enough money so that you wouldn’t have to worry about your credit score. But rich people have to start somewhere too.

      Some of the richest people in the world became wealthy by starting their own business – I’m sure some of them needed credit in order to help finance their start-ups.

  • Jon | Free Money Wisdom

    The most critical strategy is to keep old cards open. Don’t close them like I did. I personally got hit with over 25 point subtraction because of this mistake. And use the cards responsibly, never going over 25% of your total credit limit for that specific card.

    • Ben

      @Jon, thanks for sharing how these impacted you! How do you know the 25 points was due to closing the card? Did you just check your score before closing and after closing the card?


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