Your FICO credit score is super important in your financial life. It determines what kind of credit cards you can qualify for and what interest rate you will get charged. It also determines what type of interest you pay on personal loans and car loans.

Your credit score also impacts where you live because your credit score can get pulled for things like rental applications & mortgage applications. It can even impact your career because employers can pull your report, if they see you are not responsible with your own finances then you may not be a responsible employee.


Know your score

You really need to know your credit score and if it isn’t in the best shape, you really need to improve it to reap the benefits.  Do your best to get your score above 700, which is good but your goal should be to get your credit score above 750 to get the best interest rates and even insurance rates which can really have a nice impact on your budget as well.

You can get your free credit score by creating a Credit Sesame account which is totally free. There are other sites out there but I prefer Credit Sesame because it shows you how you grade on all 5 major credit score factors. It also give you recommendations, based on your profile, on how to improve your score as well.

Improve your credit score

So how do you improve your credit score? The first thing you need to know is how your credit score is calculated. There are 5 major factors that are taken into consideration when calculating your credit score.

  • 35% Payment History – Always pay your bills on time! The longer you’ve made payments on time, the better your score.
  • 30% Credit Usage – Owing a lot of money isn’t necessarily a problem. Utilization ratio looks at how much credit you use versus how much you have available. Owing less than 30% is good but under 10% is great.
  • 15% Credit Age – Having long relationships with creditors is a good way to get and keep a good credit score.  It shows that you are responsible and the creditors you have now want to keep your business.
  • 10% Account mix – Having different types of credit accounts shows that you are responsible and are able to manage your money. You should have a good mix of credit and store card as well as bank loans, such as personal loans, car loans or a mortgage.
  • 10% Credit Inquires – Applying for new credit frequently is not a good sign to creditors. It makes you look desperate for money which negatively impacts your score.

Take a look at each of these factors on your Credit Sesame account.  Credit Sesame gives you a grade for each of the factors.  The first two factors you should look at are Payment History and Amount owed which make up 65% of your credit score. So if your credit needs a huge improvement, these are the two areas you should really concentrate on first.

Pay bills on time

Always pay your bills on time, as long as you pay the minimum payment you will be fine. Paying just a few days late will negatively impact your credit score. Plus you will get hit with big late fee charges and your interest rate could increase by quite a few points.

Clean up your credit report

Review your credit report at least once a year for any errors.  If you do find errors, dispute them and request that they are removed.  

Pay off legitimate debts owed

If you have legit derogatory marks such as an account in collections, contact the agency and negotiate an agreement that you will pay the debt if they agree to remove the mark from your credit report.  If they agree, get it in writing prior to payment.  This may not always work but it is worth giving it a try. Otherwise, the negative mark will stay on your report for 7 years.

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Decrease your credit utilization

Review your credit utilization ratio, if you utilize more than 30% you should do your best to get that number to less than 30% which is a B score. Even better, get it under 10% which would give you an A score.  

Increase your credit limits

Ask for a credit limit increase from creditors.  By increasing the amount of credit you have, you decrease your credit to debt ratio.  This, in turn, will increase your credit utilization score as well as your overall credit score.

Once you get your Payment History and Credit Utilization under control, the next thing you need to work on the other three factors. Credit Age, Account mix, and Credit Inquires.  These three factors make up the other 35% of your credit score.

Don’t close any credit accounts

Keep credit accounts open and active, 15% of your credit score is calculated on credit age. Closing accounts will actually hurt your credit score. Some companies will automatically close an account if it is no longer being used. You should make one small purchase with these accounts a few times a year and pay them off right away to keep the account active.

Keep opening new account to a minimum

Try not to open up any new accounts until your credit score is under control.  Sometimes opening new accounts makes a lot of sense if you are getting a great rate or getting a 0% APR for balance transfers. Just be sure that it is worth the effect it will have on your credit score.

Account Mix

Credit agencies like to see that you can manage different types of accounts.  You should have a mix of credit cards, store cards, and loans.  Consider getting a personal loan to pay off credit card balances.  This will save you on interest paid, lower your credit utilization and will give you a better account mix.

Credit Inquiries

Try to keep opening new credit accounts to a minimum.  Credit Inquiries stay on your credit report for 12 months.  If you are planning on applying for multiple accounts, try doing them all within the same month. You score will take a hit but the inquires will be gone in a year.

Final words

Now it’s time to roll up your sleeves and get to work on improving your FICO credit score.  If you have any tips you would like to share, please leave a comment.