5 Steps To Improve Your Credit Score
Your credit score is a big part of your everyday life. You may not even realize how much it affects decisions other make about YOUR future. And it’s all based on what the see when they pull your credit.
Do you realize that anyone who you give a few pieces of valuable personal information to could pull up your credit history? I know that your first thought might be scammers and identity thieves.
Although this is very true, it is not the focus of this article today. I’m talking about legit people or companies that you give this information to such as insurance companies, lenders, potential landlords and even employers.
These people can determine (at least a small part of) your destiny based on what they see from your credit report. Insurance companies and lenders can and will charge you more if your credit is not up to par. Plus you can get denied for a lease or get dismissed for a job based on your credit.
Ultimately, these decisions all boil down to you. You are the one who should take control of these decisions and you CAN. You need to control your own destiny.
The way you can do this is by not giving anyone any reason to deny you from the housing or career you want or charge you more for services based on your credit.
How do you do this? Get and keep your credit score up, that is how. This is something you can control.
I had horrible credit for most of my young adult years but I turn things around once finally learned how much it affected so many things in my life. That is when I became determined (and a little obsessed) to improve my credit score.
Of course, I read everything I could to help me in my journey, I was desperate for advice, tips or any kind of help I could get my hands on to help me do this as quickly as possible. This is when I discovered Credit Sesame.
Credit Sesame has really helped me to go from a poor credit score to an excellent one. Their tools and articles helped me to learn everything I needed to do to get on the fast track to good credit.
Let’s take a look at how you can improve your credit score with Credit Sesame.
One of my good friends let me take screenshots of her Credit Sesame account so I can demonstrate. I’ll just call her Ann for this post.
So as you can see Ann has a pretty good credit score. Her score is 720 which is considered a good credit score but could be better, 850 is a perfect score.
There are five factors that are taken into consideration when calculating your credit score.
- 35% Payment History
- 30% Credit Usage
- 15% Credit Age
- 10% Account mix
- 10% Credit Inquires
Let’s break them down one by one in order of importance.
Looking at the screenshot below, Credit Sesame gives you a score for each of the 5 factors that affect your credit score. This is great because it shows you exactly what you need to work on to improve your score.
This first screenshot shows that Ann has a great payment history. This means that she pays her bills every month and on time. Payment history is the biggest factor in calculating your credit score.
Now if your score is anything but an A, this needs to be the first area that you should work on. You will notice at the bottom of this shot it shows you the “total accounts with negative marks” and a view details link.
The first thing you should do is click on the view details link to make sure that these are legit. If you find any errors you need to dispute it. There will be a link to the credit agency’s website where you can do this.
In fact, I once found an error on my credit this way. The negative mark came from a doctor’s bill that claimed I did not pay. I disputed it because I had health insurance that was supposed to cover this and gave them proof.
The credit agency checked into it and within 3 or 4 days the negative mark was removed, my payment history went back up to an A and my score jumped up around 20 points. It was super simple. Don’t let any errors go without disputing.
How to improve your Payment History
Now if you have the means to pay all your bills but maybe sometimes forget or don’t get it done on time, then I suggest you automate paying your bills. You can read Automate Your Payments to Save Money and Time for some tips.
On the other hand, if you can not make payments monthly you need to find a way to bring in some extra money to make ends meet. Take on a part-time job, sell stuff online, basically anything you can think of.
You can read my article 5 Businesses You Can Start For Under $200 for some tips. There are some that you can even start for almost nothing.
The next score you will see is your credit usage score. As you can see, Ann’s score is not so good here. She is using 49% of her available credit. Because her payment history score is good, this would be the first thing she needs to work on to bring her credit score up.
For Ann to bring this up to a B score, she needs to bring her credit usage down to 30%, to achieve an A score she needs to bring her credit usage down to 10%.
What I would first do is click on the view details link. This is where you will see your total available credit as well as how much you are currently using. Now click the View Breakdown link to get a more detailed view.
The screen below shows the details of Ann’s credit usage. As you can see she has two cards with zero balances and one with a low balance, no biggie.
It’s the two top cards that are contributing to her low score. Both of these cards have a usage of 65%. Ann needs to work on bringing these balances down to bring her total credit usage to 30% to start which will bring her score up to a B.
Her overall goal should be to bring her credit usage down to 10% which is an A score. Based on her total available credit of $14259 she need to bring her balances down to $4277.70 for a B score and $1425.90 to achieve an A score.
The age of your credit is the next factor. Basically, the longer you are customers of creditors the better. This means that these companies value you as a customer and want to keep you around.
Notice the tip below the scores? It states that creditors and lenders like to see an average age of over 5 years. Ann’s rating is a B right now, but her average credit age is 4 years and 11 months. This means her score will take a nice jump up in the next month next month or so.
Now, improving this score is a bit difficult. Let me rephrase that, you really can’t improve it. All you can do is prevent it from decreasing.
You can do this by not closing any of your accounts, as well as not giving your current creditors any reason for closing them on you.
The way to do this is to keep your cards active. Don’t go overboard but every few months you should make a small purchase or two using the credit card accounts that do not have much activity. Then pay the balance as soon as you get the bill (or sooner). In time, this will begin to increase.
Your account mix makes up 15% of your credit score. Lenders like to see that you are able to handle different types of accounts such as bank loans, car loans, and credit cards.
Ann has an A in this category. If you look at the screenshot below, she has 5 open credit card accounts, 2 auto loans, and 1 other bank loan. So out of the five loan categories, Ann has three types of accounts.
You should aim for a good mix of at least three types of accounts. So let’s say that all your accounts are credit cards and maybe a car loan. One easy way to bring your score up is by consolidating some of the balances on those credit card accounts into a personal loan.
By doing this, it will add one more account type to your list (which is a bank loan), plus it will (or at least should) reduce your monthly payments and save you money by reducing the interest you are paying on your balances.
One thing to consider here is that you should only try to consolidate your credit cards if your score is decent enough to get approved for a loan. If it is not and you get denied, you will still be in the same boat you are now and the credit inquiry will affect the last factor we are going to discuss next.
The fifth factor that makes up your credit score is credit inquiries. So every time you apply for any type of credit whether it’s a new credit card, home or auto loan, store credit or anything else, you credit inquiries score is affected.
Note: Checking your own score through your Credit Sesame account does not impact your credit score.
Credit inquiries affect this score for 12 months. Ann has a B credit inquiry score and as you can see she only has one credit inquiry in the last 12 month. So to get and keep an A score you basically can not apply for any new credit. Luckily this factor has the lowest impact on your credit score.
Credit Inquiries Detailed
Now, looking at the details, you will also notice it states “keep the 12-month count under 2 to keep this grade”. So with one more credit inquiry, her score will fall to a C and so on.
Be cautious when applying for credit, of course when you were looking to purchase a new home or vehicle, you would have no choice. The point is, if you are going to apply for credit, make sure that the inquiries are few and far between.
Credit Sesame will take the guesswork out of this for you. They also give you recommendations your chances of approval based on your personal profile.
Do not apply for a bunch of credit all at the same time hoping that one of those applications gets approved. This will hurt your score for up to one year.
So as you can see, you can get a lot of valuable information from opening a free Credit Sesame account. Credit Sesame will take the guesswork out of all of this for you. They give you recommendations on what and how to improve your score and show you how to prevent your score from decreasing. Plus they have tons of articles that will help you on your way to an excellent credit score.
Credit Sesame also is ranked to be one of the best in identity theft protection. You can read a review from reviews.com here if this is a service you are interested in.