How to Improve Your Credit Score
Date: April 14, 2023
It’s hard to get approved for a mortgage, credit card, or other types of loans and lines of credit without a good credit score. With loans, having a good (or great) credit score can be the difference between receiving an interest rate you can afford, versus a rate that makes a loan payment plan unaffordable. A bad credit score can be a deterrent from achieving your financial goals. As of last year, over 28 million Americans[1] did not have any credit at all! If someone has "no credit" they need to establish it first, in the case where you have low credit, there are ways to raise your score. You just need to make the effort, be dedicated to the process, and give it time.
Before you can act, you need to know the facts. What is your credit score? Are you succeeding or falling short when it comes to your use of credit? You can request a free credit report each year from the major credit bureaus. Affinity teams up with FICO[1] to provide our members with free access to their FICO scores, which are updated quarterly. Once you know your credit scores, you can understand the scale. A credit score can be as low as 300 and as high as 850[2], though the criteria for “poor”, “good,” “great” and “excellent” scores differ across the three major reporting agencies. In general, scores in the low to mid-600s and below are considered “poor,” those in the upper-600s and above are considered “good,” a score in the mid-to-high 700s is considered to be “great”, and a score of 800 or above is an excellent credit score!
What steps can you take to improve your credit score? There are a few actions you can take immediately:
1. Pay your bills on time: First, aim to make at least your minimum payments on time. Late payments directly affect your credit score. Payment history is considered the most important factor[3] in affecting your credit score. If you have missed payments or struggling to get up to date, contact your financial institution to discuss ways on how to become current on your payments.
2. Check your credit card balance: Americans have 986 billion dollars in credit card debt according to the latest consumer debt data from the Federal Reserve Bank of New York[4]. The average American consumer also holds a $5,221 balance on their credit card.[5] To avoid your score dropping, try to maintain your credit card usage under 30% compared to your limits. Just carrying a balance on your card will not hurt your credit score, as long as you are making your minimum monthly payments but try to send more than the minimum payment to avoid paying balances for extended periods of time.
3. Look for programs to help raise your credit: Certain companies, like Experian[6], offer programs that monitor credit and help boost your score. This program can count your on-time cell phone and utility payments as credit in an effort to build your credit score.
Whether you have no credit and are starting from scratch or looking to raise your credit score from “poor” to “good” or “great”, it is important to have patience with the process. Establishing good credit will take time and won’t happen overnight. Understanding exactly what makes up your score and what you can do to change it is the first step! Visit our website to learn more about Affinity’s free credit counseling services.
This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person's circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitment.