Over the last few years, I have raised my credit score from around 500 to above 800. The benefits are honestly unbelievable. For example, earlier this year I took out my first mortgage and qualified for a 3.99 interest rate on a 30 year fixed loan – all thanks to my ‘A’ credit rating. I could course couldn’t have qualified for a loan at all when my credit score was around 500. After it started to come up, I certainly could have taken out a loan, but the cost would have been excessive.
In fact, I figured out that if I had bought the same home, at the same price when I had 650 credit, it would have cost me more than $90,000 in extra interest and fees. I make good money but can definitely not afford to pay out an extra $90,000 for no reason. If you are in a similar situation, I would recommend doing what I did which is waiting until you can raise your credit score.
Step 1 – Making Your Payments On Time
The first step to improve your credit score is starting to make on-time payments. Your payment history accounts for 350f your credit score so when you make payments late, they hit your credit hard. Figure out which of your payments are being reported to credit bureaus and commit to never again pay them late.
Late payments stay on your credit report for seven years. That means that late payments that you made six years ago are still there. It won’t do any good when they drop off if you have new late payments to take their place.
I made this commitment almost eight years ago and haven’t made a single late payment since, on an account that gets reported.
Note: This concept only works if you have accounts that get reported to credit bureaus. If you don’t, you should get some.
Step 2 – Paying Off Debt
The amount of revolving debt you have accounts for 300f your credit score and honestly, this is the fastest issue to correct. Your credit report doesn’t show what your debt was last month, it only shows what it is now. That means that your credit score will improve immediately as you pay down your debt.
The larger percentage of your available credit that you use, the lower your score will go.
For example, if you have $20,000 of available credit on credit cards, this part of your score will be great if you’re only using $100 of it. On the other hand, if you’re using $18,000 of it, it’s killing your credit score.
Work on paying your debt completely off and your score will improve big time. You can learn more about this concept at Doctor 650: here.
Step 3 – Keep Your Accounts Open
If you have existing credit cards, keep them open. The age of your accounts makes up 150f your score. The older they are, the better.
This Method Works
This all might seem overly simple but honestly, it works. I raised my credit score by 300 points this way. It can take years to make a jump that big but you don’t need a huge jump if you’re already at 650. In fact, improving to 720 would make a huge difference in your loans and you can improve that much in no time.