Financial Fitness #4: How to raise your FICO score

7 Aug

First and foremost, this is what my horoscope said this morning:

Yeah, yeah, I get it. I don’t need my horoscope to remind me that I’m going to have to turn down invitations for anything fun that costs money this month. On the last Sunday of this month, 15 of my closest friends and I will be hitting the road for Emerald Isle, NC, where we have rented this beautiful house for the week:

Paradise, right? Right on the beach, pool, hot tub, 7 bedrooms, pool table, foosball table — I really can’t wait. However, when you live on as tight of a  budget as I do, it takes some serious financial planning to afford a week long vacation. It helps that I have a huge group of friends who are totally willing to plan such a big trip together. I like to be comfortable while I’m there and not stressing about putting myself into debt that will last until next summer, so I’m pinching some pennies. But this isn’t a post about saving for vacation, so let’s get to the meat of today’s post: How to raise your Credit Score.

I’ll admit that 6 months ago, I didn’t even know what my credit score was. I didn’t want to know. I’d avoided credit cards most of my life because I ran into some trouble with them early on, and I pretty much paid for everything in cash. I was on a cell phone plan that I shared with my family, I didn’t have a mortgage or a car loan. Other than student loans, I appeared to be debt free.

Then, Zach and I decided that we wanted to start the home-ownership process and I had to suck it up and check my score. I don’t know why I was surprised that my credit score wasn’t so desirable. It turns out, if you want low rates on credit cards, mortgages, car loans, etc., you have to build up your credit score. I’ve managed to up my score by 50 points in the past month, so I’m going to let you in on how I did it.

What you can do to boost your score right now: 

  1. Get a copy of your credit report. This is the number one, most important thing to do. You can’t improve your score without knowing where you stand. Once you have a hard copy of your report, you can sign up for a Credit Karma account to monitor your score without putting hard inquiries on your report. Checking your own report is ok, but if you have a lot of hard inquiries from companies on your report, it can negatively affect your score.
  2. Dispute or pay old debts. I was actually surprised to find a couple things on my report that I didn’t know about. Old debts and mistakes are more common than you think. The first thing is to dispute anything that you think shouldn’t be on there. Write to the company and ask them to verify your debt, and if it isn’t yours, you can dispute it with the Federal Trade Commission. If the debt isn’t able to be verified, you can request that it be removed from your report.
  3. Consolidate your student loans. If you want a boost on your credit score, because you’re applying for a mortgage or something, consolidating your student loans will do that. However, you should consolidate anyway.
  4. Reduce the amount of debt you owe. Easier said than done, but if you owe a large chunk anywhere, put a large chunk of money towards it. Especially if it is high-interest debt, you could even reduce the amount of savings you’re putting away to pay down that debt. Remember, having a savings account that is collecting a  low interest rate isn’t as important has having no high interest debt.

What you can do to maintain your score boost and raise it over time: 

  1. Pay more than the minimum on time. There is no getting around this. Even one late payment will do damage to your score.
  2. Keep your debt to available credit ratio around 30%. Which means, if you have a credit card that has a $1,000 balance, you want the available amount of credit on that card to be around $700. If you buy a big-ticket item on that card, pay it down to 30% available credit ASAP (if you can’t pay it totally off).
  3. Have various types of credit on your report. Having a variety of types of credit helps you look more desirable to potential lenders. Again, as long as you are managing your debt responsibly. But don’t open a bunch of accounts just to have a mix — that could get you into trouble in the long run.
  4. Don’t close your oldest credit account. Length of time you’ve held your accounts is a big indicator in your score. If you have an old card, pay it off, then use it once each month and pay it off.

I think of having a high credit score like using the heaviest dumbbells I’ve used in a work out — it’s a sense of pride and shows how strong I am. The stronger your FICO score, the better rate you will get on your accounts, saving you money in the long run.

In the meantime, I’ll be pinching my pennies for my vacation.

Question of the day:
Do you know what your credit score is? 

2 Responses to “Financial Fitness #4: How to raise your FICO score”

  1. haley August 7, 2012 at 10:19 am #

    I definitely need to raise my credit score but I’ve never had a credit card and quite frankly, I am terrified of them. Do you have any recommendations?

    • kristyshealthrevolution August 7, 2012 at 10:23 am #

      I totally understand! I suggest getting a secured credit card, with a low limit to start. I was scared too, but just make sure you pay more than the minimum each month (with a goal of paying it off each month). If you sign up for a Credit Karma account, it will give you suggestions of what kind of cards you qualify for.

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