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How to Improve Your Credit Score

Founded in 1951, the National Foundation for Credit Counseling is the largest serving nonprofit financial counseling organization. Find various topics in this blog, including personal finance, credit counseling, housing, budgeting and student loan help. Click here to speak with an NFCC-certified Consumer Credit Counselor.

MarkFoster_CCOABy Mark Foster

I am often asked how someone can improve his or her credit. Credit can impact many things, including: Employment, down payments, interest rates, utility deposits, and even car insurance. Improving your credit can help you get that job or house you wanted, not to mention possibly saving you thousands of dollars in interest on loans. There’s a lot of information floating around out there and not all of it is accurate. As Abe Lincoln said, “Don’t believe everything you read on the Internet.”

So here are some answers to common questions I hear regarding ways to help you improve your credit:

  • Will having a better paying job or putting more money in savings help? It will certainly help impress your loan officer if you apply for a home or car loan, for example. However, your credit score is all about your credit, so more money will not have an impact on your score.
  • Won’t paying a company to improve my credit help? Actually, by law there’s nothing that a costly “credit repair” type company can do for your credit that you can’t already do by yourself, and for free!
  • Shouldn’t I keep a small balance on my credit cards for the best possible credit score? Actually, FICO credit scoring company says no. The less you owe, the better your score. That being said, if you have credit cards that you rarely use and they just gather dust in a box somewhere, that will not do much to help your score. FICO likes that you have credit and that you use it very conservatively, but that you do actually use it. So perhaps once every month or two you could charge a  tank of gasoline to a card and then pay it off in full when the statement comes.
  • My card balances are all well under their card limits, not maxed out, so I’m good on those cards, right? Again, FICO likes that you have credit and that you use it, but the less you owe, the higher your score will be. And perhaps the biggest credit scoring surprise that trips up a lot of people is this – if you owe 50% or more of your credit line (such as owing $1,000 on a $2,000 card limit), FICO calls it a score killer! You’re looking at it as the glass is half full, but FICO looks at it as the glass is half empty. So knock down that debt and watch that score go up!
  • Won’t a credit counseling Debt Management Program ruin my credit? Just the opposite, actually. Like I’ve mentioned, the less you owe, the better your score. So as you pay your debt down on a DMP, your score will go up. We often pull credit reports on clients before they start the DMP, a few years into the DMP and at the finish of their DMP when they’ve paid off all their debt. What we see reflected in their credit score is that their score goes up and their debt goes down. So don’t let that myth keep you from going on a DMP and becoming debt free!

Lastly, 65% of your credit score is how well (on time or not) you’ve paid in the past and how much debt you have. So be sure to pay on time with at least the minimum due and aim to knock down your debt. That will greatly improve your score. Plus, there’s nothing quite like the feeling of financial freedom when you become debt free!

Mark Foster is Director of Education with Credit Counseling of Arkansas (CCOA). CCOA is a member of the National Foundation for Credit Counseling. To schedule an appointment with a Certified Consumer Credit Counselor contact CCOA at 800.889.4916, or visit CCOA online at www.CCOAcares.com.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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