Raise Your FICO Credit Score: A Complete & Ethical Guide
This clear, comprehensive step by step guide lets you know the practical, realistic steps that you can take to improve your credit scores, from getting your report in the first place through to understanding your expenses, prioritizing what to pay off, setting up automatic payments and more.
If you want to fix your credit history and improve your FICO credit score, it's important that you take careful, thoughtful and useful action. Don't be tempted to try to fix your credit score quickly or use a 'Credit Repair Service' as this may actually do you more harm than good. Instead, if you make changes and improvements over a longer period of time, that will have a much better chance of improving your credit history.
The most important piece of advice is to be responsible about rebuilding your credit; following the advice in this article, budgeting properly and establishing good financial and spending habits will go a long way to rebuilding your credit and loan worthiness.
Maintaining a healthy credit score is vital to being able to take out affordable loans, mortgages and credit cards. For some of us though, circumstances can mean that our credit scores need to be improved, sometimes drastically. This guide covers the following:
- Understanding your existing credit report, score and rating
- Understanding your finances and setting a budget
- Understanding what you owe and who you owe it to
- Paying off small balances
- Setting up automatic payments
- Setting up payment reminders
- Paying your bills on time
- Getting up to date with missed payments
- Asking lenders to forgive missed payments
- Talking to your lenders
- Reducing the amount that you owe
- Keeping what you owe on cards to a minimum
- Not moving debt around
- Not opening or closing accounts unnecessarily
- Not using credit repair companies
- A summary of what to do and what not to do
Benefits of following this guide
- Improve your credit history, rating and score
- Use ethical, practical advice to get a better credit rating
- Take small, practical steps to get in control of your finances and your debt
A note on terminology
Your individual credit score is based on your credit history. When we talk about improving your credit score, what we actually mean is establishing a good credit history, which will be reflected in an improvement to your credit score.
This article uses credit history and credit score to mean the same thing - The things that lending agencies take into account when deciding to lend you money or provide you with a credit card.
Step 1 - Understand your existing credit report, score and rating
Get your credit report and check it - To repair your credit score, you need to understand how your credit is rated right now. You can get hold of your credit report for free. You should:
- Check your credit report for errors
- Check that there are no late payments listed incorrectly
- Check that there are no credit accounts listed that you don't know about
- Check that any balances and amounts owed are correct
- Check any other information listed for you or people connected to you to make sure it is accurate
- If you find any inaccuracies in the report, let the credit bureau, lender and any other agencies know so that they can be corrected as soon as possible
Step 2 - Understand your finances and set a budget
You need to set a budget so that you know exactly how much you have coming in and going out every month. That way, you will know exactly how much you can afford to replay, without getting yourself into further debt.
There are a number of budget calculators available that will help you understand your income and where you are spending your money.
Spending a few minutes setting this up and then reviewing your budget on a monthly basis will help to put you in control of your finances so you can make better decisions, reduce the amount you owe and ultimately improve your score. Just search online for 'personal budget calculator' and you will find a variety of tools to help you understand your income and expenditure.
Step 3 - Understand what you owe and who you owe it to
List how much you owe to each particular lender and how much interest they are charging. Then, take any spare money that you have left over and pay off the higher interest debts first of all.
Step 4 - Pay off small balances quickly
If you have a number of credit cards with small outstanding balances on them, pay them off as soon as possible. Having lots of credit accounts with balances can hurt your credit score. Instead, try to limit your credit spending to one or two credit cards.
Step 5 - Set up automatic payments so that you don't miss repayments
One of the main areas that can hurt your credit score is when you forget, or you're not able to make regular monthly payments. This goes onto your credit report as a 'missed payment' and is a red flag to lenders, because they are less likely to lend you money if you can't repay it.
Because of this, whenever possible set up automatic payments on any debts or bills that you owe. You can often do this online, either with a debit or credit card or via a direct transfer from your bank account. You might also want to include a reminder in your budgeting and planning so that you remember that the payment is going to be made and you don't leave yourself short of money.
Step 6 - Setup a reminder system so that you remember to make payments on time
If you can't, or don't want to make automatic payments, set up a reminder on a monthly basis so that you remember to make your minimum payments. There are several ways of doing this:
- Your bank may offer it as a service
- You can set it up as a repeating appointment or task in your calendar
- There are several free services that will email you on specific dates to remind you to pay your bills; search online for 'reminder services' for a list
Step 7 - Always pay your bills on time
Missing even one payment can have a major impact on your credit score. If nothing else, always remember to pay any outstanding amounts on time, every month, and where possible, always pay off more than the minimum requested; this will help you get out of debt faster.
Step 8 - If you have missed payments, get up to date as fast as you can
Sometimes, it's possible that you will miss a payment. If this does happen, try to make sure that you get up to date with your payments as soon as possible. The longer that you can go without a missed payment, the more your credit score will improve.
Step 9 - Ask if a lender will remove a missed payment from your record
If you have a good history with a lender and you've just missed one or two payments, which you then later repay, it may well be worth contacting your lender to see if they can remove the late payment notification from your credit report.
Although it won't always be possible, in some cases, especially if you are a good customer, they will consider it, and this will be good for your credit score.
Step 10 - If you are having problems paying, talk to your lenders
In some situations, you may owe more in your household expenses and repayments than you make in a given month. If this is the case, speak to your lenders as soon as you can and explain your situation. In many cases they may be able to assist you with repayment terms.
Another alternative is to contact a responsible and ethical debt or credit counsellor. They will be able to provide impartial advice on reducing your debt and improving your credit score. Getting advice from a counsellor will not impact your credit score negatively in any way.
Step 11 - Reduce the amount that you owe as soon as possible
The single biggest step you can take to improve your credit score, financial responsibility and sense of achievement is in reducing the amount that you owe. This has several benefits:
- You will pay less interest on outstanding amounts
- You will be debt-free sooner
- It looks good on your credit score and is an encouragement to lenders
- When your debt is paid off, your money will be yours again
Step 12 - Keep the amount that you owe on credit cards to a minimum
It can be very tempting to spend money on credit cards, but the interest charged can quickly add up. It's good for your credit score if you can keep your balances down to a reasonable level that you can afford to repay.
It also helps lenders when reviewing your credit worthiness - If they can see that there is a decent gap between your credit limit and your balance, they will consider you less risky to lend money to. Keeping your balance to 10% or less of your credit limit is a good indicator to lenders and will improve your score.
Step 13 - Don't move debt around
Moving debt from credit card to credit card or between loans can damage your credit score. You are much better off simply paying off the outstanding balance on a credit card or loan, rather than moving it elsewhere.
Step 14 - Don't open or close credit, loan or credit card accounts unnecessarily
Closing down or opening up credit accounts without a good reason can harm your score, specifically:
- Don't close unused credit card accounts unless you really don't need the card anymore and don't be tempted to open new accounts if you don't need them
- Never open up lots of credit accounts in a short period of time, as this is an indication that you may be applying for too much credit and will have issues repaying
- Don't open accounts just because you can; this is unlikely to improve your credit score
- Be responsible with opening credit accounts and paying them off
- If you do need to open a new credit account, use it for a specific purpose and then pay it off. This will have a longer-term positive effect on your credit score
- Closing an account won't remove it from your credit report
- Closed accounts will often remain on a credit report as an indication of credit you have had in the past. This means that closing a credit account won't remove it
Step 15 - Avoid 'Credit Repair Companies'
Companies that claim to be able to help you improve your credit do not have some sort of magical ability to improve your credit history or score, neither do they have an influence on lenders or your credit history.
What they are likely to do is simply get you to take the steps outlined in this guide, but they will charge you for providing the advice. In almost all cases, it's worth saving the money you would pay them, making some common sense decisions and using that money to pay down your outstanding debt.
Tips to improve your credit score
A summary of what you should and shouldn't be doing
Here's a summary of good things you can do to improve your credit history; do:
- Check your existing credit report and score and correct any errors
- Spend time understanding your incomes and outgoings
- Set a budget so that you can afford repayments
- Work out what you owe, who you owe it to and interest rates
- Pay off small balances on credit cards and loans quickly
- Setup automatic payments to pay minimum balances (and more than the minimum balance if possible)
- Set up reminders to make repayments if you don't have an automatic payment in place
- Pay your bills on time, every month
- If you miss a payment, get up to date as soon as possible
- Ask your lender if you miss a payment if they would remove it from your credit report
- Talk to your lenders if you are having problems making payments
- Reduce what you owe as soon as possible
- Keep the amount you owe on credit cards to a minimum
Here's a summary of things to avoid to improve your credit history; don't:
- Just repay the minimum amount; this will keep you in debt longer and means you will repay more in interest
- Miss a repayment
- Suffer in silence - Speak to your lenders or an ethical debt or credit counsellor
- Go over your credit limit
- Move debt around
- Open or close credit, loan or credit card accounts unnecessarily
- Use credit repair companies
What's your next priority for improving your credit score?
It's fine to have credit cards and loans, as long as you're responsible.
If you have a credit card or loan, make your payments and settle the balance in a reasonable amount of time, this will go a long way towards improving your credit card. People with credit cards and loans that they are able to repay are a lower risk for lenders than people with no credit history at all, and this will be reflected in your credit score.
Improving or fixing your credit score is about more than what credit accounts you have, and rebuilding your credit history will take time. Managing your budget responsibly, making payments regularly, reducing what you owe and demonstrating to lenders that you can afford credit is the best way to fix your credit score.