How to Increase Your Credit Score and Fix Bad Credit

Regardless of your financial situation, your credit score is an important aspect of your finances. This is especially true if you’re planning to borrow money for any reason. With a better credit score, you could get better interest rates and terms on your mortgage, car loan, and other type of loans. As such, it’s a good idea to do what you can to raise your credit score.

If you don’t know your score yet, here’s how you can get your credit score for free. It only takes a few minutes to sign up and find out.

How Your Credit Score Is Determined

Before you can improve your credit score, you should have a basic understanding of how your credit score is calculated. In general, there are 5 key factors that influence your score.

Graphic from myFICO’s About FICO scores page

Factors Weight
Payment History. Do you repay your debt on time? Late payments, collections, and bankruptcy are also included here. 35%
Credit Utilization, or Debt to Credit Ratio. How much money you owe compared to your credit line? 30%
Length of your credit history. How long is your track record? How old is your first credit card? 15%
Credit Mix. Do you have different types of loan — e.g., mortgage, car loan, business loan, revolving credit, etc. 10%
Credit Inquiries. Do you have a lot of applications for credit recently? 10%

Improving Your Credit Score

Now that you know how your credit score is determined, it’s easier to put together some guidelines to help you improve your credit score.

Payment History

  • Pay on time and avoid late payments. The easiest way is to pay as soon as you get the statement or schedule your payment in advance. If you still make your payments by mail, read this article on how to avoid late payments by using proper envelope.
  • Avoid collections. Make sure you can make your payments before adding to your debt.
  • Avoid bankruptcy. Bankruptcy stays on your credit report for 7 to 10 years.

Credit Utilization

Length of credit history

Credit Mix

  • There’s no sense in getting into debt just to improve your credit mix, so I’d just let this one be.

Credit Inquiries

  • Understand the difference between soft pull and hard pull. Avoid activities that create a hard pull because these impact your score negatively.

It’s important for you to note that it takes time for your credit score to improve, so please be patient.

Do you know another credit score improvement tip? Please share yours here.

About the Author

By , on May 27, 2009
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Credit Score Ratings Chart

Credit Score Description
750+ Excellent
700 - 750 Good
640 - 700 Average
580 - 640 Poor
below 580 Bad
see your credit score now

Leave Your Comment (12 Comments)

  1. Trudy Hooks says:

    I recently received my credit scores which actually weren’t bad but could be better. I noticed that one of the reasons given for not receiving a higher score is that there was a delinquency in the past on something. I can only think of a couple of times when I didn’t pay my Am Ex bill on time. Is that really the reason? In all the years of having that card it seems to me to be such a insignificant default!!! How do I dispute such a demerit on my credit history?

  2. Nick says:

    Rebuilding your credit after a disaster can be a long process, but there are a few steps you can take to help increase your score within a couple months.

    Pay Off Your Credit Cards And Lines Of Credit – This is one of the fastest ways to increase your score and it will also lower your debt utilization ratio, the difference between how much credit you’re using and the credit limits. Paying off debt with another loan would show up on your credit report and could do more damage than good, even if it is for a lower interest rate. It is best to just pay it down using your income, savings, or selling some of your stuff for extra cash. A riskier approach that may not be for everyone is a 401(k) loan which won’t show up on your credit report, but if you happen to lose your job, you will have to pay the money back fast or you’ll incur taxes and penalties on the balance. If you do take a 401(k) loan, make sure you’re able to repay it quickly. You shouldn’t cash out a 401(k) or other retirement account to pay off credit card debt. Sacrificing retirement income isn’t worth a few points on your credit score.

    Use Credit Cards Lightly – Instead of using credit cards to pay for anything, only use cash. You might have to make some sacrifices by not being able to buy as much, but remember that the scoring formula looks at the gap between how much credit you are using and what the limits are.

    Focus On Correcting The Big Mistakes On Your Credit Reports – If someone else’s negative marks are showing up in your report, getting them removed would be beneficial. You also shouldn’t ignore any collection amount just because it is small or listed as paid off.

    Use The Bureaus’ Online Dispute Process – Some people have said that they get quicker results this way, but make sure you still get printouts of everything you are doing.

    Try To Get Creditors To Report Positive Accounts – Some creditors don’t report to the bureaus on a regular basis or even at all. If you have an account that is in good standing, see if you can get them to report it.

  3. Mayank Gupta says:

    As mentioned, Paying your credit card bill on time also helps in improving credit score fast and utilizing secured loans also helps in improving your credit score

  4. This really can be an issue with a small business owner attempting to obtain an sba, or traditional small business bank loan for working capital to grow or finance their business. In these times many merchants we talk to, have beaten up their personal credit pretty badly, hence low fico scores. However, as a merchant business cash advance funding group, we are able to get businesses the money they need, to stay in business. There are some great tips videos on my blog.

  5. beryl maureen hammond says:

    knowing how your credit score is determined makes it easier to improve your score.

  6. Gordon says:

    Knowing about the various constituents that constitute your credit score makes credit score repair an easier process.

  7. DDFD says:

    Solid advice, but there is a great deal of time and patience involved in improving scores . . .

  8. Siege says:

    Uh… While I agree that a good credit score is better than a bad credit score, the only thing a good credit score means is that you like debt and are successful at managing lots of it. So I disagree with the opening sentence. I don’t feel my credit score is an important part of my finances. I’ve put financially sound principles into my life over the past years and was able to pay cash for my last car. My goal is in 3-5 years have my mortgage (my last debt remaining) paid off at which point all future house purchases will be in cash.

    So while these principles might be good for someone with a low credit score who is trying to buy a house, the ultimate goal should be no credit score at all.

  9. Pinyo says:

    @craig – Thank you for sharing that tip. I saw it on Bargaineering as well.

    @Patrick – Great add. I think I’ll update my article so people will know that it takes time for the score to change.

  10. Patrick says:

    Very solid tips! The only things I will add is to have both diligence and patience. It can take some time to see your score change, and how quickly and how much your score changes depends on many factors.

  11. craig says:

    After recently reading I Will Teach You to be Rich I used one of his techniques to hopefully raise my FICO score. I have no CC debt and pay on time every month and called up and asked them to raise my credit limit. I have no need for the raised limit other than it betters my ratio and could help my score a bit.

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