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6 Simple Steps to Improve Your Credit Score

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Going from a 550 credit score to above 700 may seem overwhelmingly difficult, but it’s doable.

First, let’s quickly review the components of your credit score. Your FICO score is the one most commonly used by lenders who are reviewing your application for a loan or credit. There are five components to a FICO score:

  • Payment history
  • Current credit use/accounts owed
  • Length of credit history
  • New credit
  • Types of accounts

Your payment history makes up the largest percentage of your score, at 35%. This includes your history of making on-time or late payments. A late payment can really put a dent in your overall score — this should be avoided at all costs.

Your current credit use includes the amount of debt you have overall, the amount you owe on each of your accounts, the number of your accounts with balances, your remaining balance on installment accounts and your utilization rate (the amount of debt you have compared to your overall credit limit). Credit use makes up 30% of your overall score.

Next comes length of credit history, which is 15% of your FICO score. The longer you have responsibly maintained credit accounts, the better you will look to lenders.

Finally, new credit and your credit mix both make up 10% of your FICO score. Applying for new credit or loans can have a short-term impact on your score, particularly if a “hard inquiry” is made. This is when your credit report is pulled by a lender ahead of their decision, as opposed to a “soft inquiry,” which occurs when you are pre-approved by a lender. Typically, however, you shouldn’t worry too much about applying for new credit, as any ding to your score is often small and short-lived, while the benefits may ultimately outweigh the downfalls. For example, having access to more credit can help you improve your utilization rate.

Lenders will also look at the different kinds of credit accounts you have, including revolving accounts, such as credit cards, and installment loans, which include student loans, auto loans and mortgages. It can help your score, or your chances with specific lenders, to have a healthy mix of credit accounts.

If your score now isn’t what you want it to be, or if you don’t yet have a credit score at all, we’re here to help. If you follow these six simple steps, you should ultimately find yourself with a score you are pleased with.

Step 1: Get a line of credit

In order to establish credit history, you need to have a form of credit. The simplest way for you to begin will be to open a credit card. If your score is low or non-existent, you might consider applying for a secured or store card.

  • Secured Card: You’ll use your own money as collateral by putting down a deposit of a few hundred dollars with the bank. Typically, that amount will then be your credit limit. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card. [Our favorite is the Discover it® Secured. You can apply here, or learn more about secured cards in general here]

Discover it® Secured

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Discover it® Secured

Regular APR
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  • Store Card: People with a low credit score can often qualify for store cards because banks are more likely to approve users who apply through the retailer. The catch is that the interest rates are often very high, so you should do your best to pay off your balance every month. [Read more here]

Walmart Credit Card®

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Walmart Credit Card®

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$0
Rewards Rate
Save 3% on Walmart.com purchases including Grocery Pickup, 2% on Murphy USA & Walmart gas, and 1% at Walmart & anywhere your card is accepted.
Regular Purchase APR
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Target REDcard™ Credit Card

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Regular Purchase APR
25.15% Variable

Step 2: Keep your utilization rate low

As noted above, utilization is the amount of your credit limit you spend each month. For example, if you have a $500 credit limit and spend $50 in a month, your utilization will be 10%.

Your goal should be to never exceed 30% of your credit limit. Ideally, you should be even lower than 30%, because the lower your utilization rate, the better your score will be.

We recommend you make one small purchase a month, then pay it off as soon as the balance is due, to keep your utilization low and help increase your credit score at a faster rate.

Step 3: Pay in full, and on time, each month

The easiest way to prove you’re responsible is to only charge what you can afford. Never use your credit card to buy an item you won’t be able to pay off on time and in full each month.

Being late on your payments has an extremely negative impact on your credit score, once the late payment has been reported to the credit bureaus (typically 30 days after the missed due date).

Contrary to what some people may tell you, there is also no advantage to only paying the minimum amount due on your card. That will only result in you paying interest on your purchases, and it does nothing to help your credit score. Don’t fall into the minimum payment trap — your wallet will not be pleased.

Step 4: Avoid credit card debt

This goes hand-in-hand with step three. By only purchasing what you can pay off in full, you’ll never accumulate credit card debt.

If you’re already in debt from the misuse of credit cards, make sure you continue to pay at least the minimum due on time each month. Paying on time is the number one indicator of a responsible borrower.

You could also consider applying for a personal loan, and using the money from the loan to pay off your credit card debt. Personal loan companies have interest rates that can start as low as 4.25%, and some will approve people with credit scores as low as 550. You can shop around for a personal loan without hurting your score, because the lenders will approve you using a soft pull (which doesn’t impact your score). A study by MagnifyMoney’s parent company Lending Club showed that people who paid off their credit card debt with a personal loan saw their score increase by 31% on average, right away. You can look for the best personal loans using this personal loan tool at LendingTree. [Disclosure: LendingTree is the parent company of MagnifyMoney.] With a single application, you can check your rate with dozens of lenders. And the best part: LendingTree uses a soft pull, which means your credit score will not be negatively impacted.

After you pay off your credit cards with the proceeds from the loan, do not build up your debt again. Instead, just make one purchase each month and pay it off in full.

Once you pay off your cards, resist the urge to close them. Closing your cards will not only lower your utilization rate but remove history, which damages your score in the “length of credit history” category. The longer your credit history, the more time you have had to prove yourself as a responsible credit card holder.

Step 5: As your score improves, so do your options for better credit cards

You’ll start to get credit card offers as you begin to build your credit history and improve your score. Credit card companies still love sending snail mail.

Beware of any offers, especially for cashback cards, while your score is below 650. These cards typically provide little value and can smack you with high interest rates if you fail to follow step three.

Not sure if an offer is a good deal? Try checking it out in our cashback reward cards page. Our Magnify Transparency Score will help let you know if it’s the real deal.

Once you get your credit score above 680, the good credit card offers will start rolling in. You can have your pick of the top-tier reward credit cards and start using your regular spending to get cash back or rack up points for travel.

Step 6: Protect your score

Once you’ve achieved a higher credit score, but sure to protect it by following these steps:

  • Always pay on time – late or missed payments will cost you dearly
  • Try to keep your credit used below 30% of your available credit
  • Be sure to check your credit reports for accuracy and signs of fraud – you’re entitled to one free report per year from each of the three credit bureaus. You can get your reports at AnnualCreditReport.com.

If you have any questions or just want a helping hand, please reach out to us at [email protected] or tweet us @Magnify_Money

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Erin Lowry is a writer at MagnifyMoney. You can email Erin at [email protected]

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When It Can Make Sense to Open a Store Card

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

“And would you like to open a [insert store] card today to receive an extra 10% off your purchase?”

We’ve all heard this upsell strategy. Store credit cards seem to be available at just about any place you exchange currency for goods — except for maybe 7-11. But before you sign up, it’s important to know how opening a store card can help, or hurt, your finances.

What Are Store Credit Cards?

There are two types of store credit cards: store-only (closed loop) and co-branded (open-loop). The closed loop version limits your ability to use the card except with the retailer and its affiliates. The open-loop version carries a card network logo, such as Visa or Mastercard, which can be used anywhere Visa or Mastercard cards are accepted.

Some retailers offer both closed and open-loop versions of their cards, while others only offer a closed-loop card. Typically, the closed-loop cards are easier to be approved for: they often come with lower credit limits, and can be great for consumers looking to build or rebuild their credit scores.

The open-loop cards can require a higher credit score for approval, and some retailers will allow you to upgrade from a closed-loop card to an open-loop card after you’ve demonstrated good payment behavior with the closed-loop card. Or, they may require card applicants to apply first for the closed-loop card and, upon review of their credit file, approve them for the open-loop version, depending on their creditworthiness.

Pros and Cons of Store Cards

In addition to an initial discount on your first purchase, store cards can entice shoppers to return with ongoing discounts, special pricing and rewards programs. If you’re a regular shopper at that particular retailer, those discounts can help you save money, provided you pay off the balance in full when the bill is due. On the flip side, you may find yourself overspending on the card, as the temptation to just pull out the card when you don’t have the cash could be hard to resist.

Here are some pros and cons of applying for a store credit card:

Pros

Initial and ongoing discounts. If you’re purchasing a large-ticket item, getting a 10% or 20% discount can be a smart decision. And if you regularly shop at a particular retailer, taking advantage of ongoing promotions and sales will also help you save money.

Store perks. In addition to regular discounts and promotions that may come with a store card, some also throw in more perks like free shipping, invitation-only events, coupons and rewards programs.

Building credit. If you’re new to credit, getting a low-limit store card can be a great way to get started, as these cards are typically easier to qualify for. The payment activity of the card will be reported to the credit bureaus. As long as you handle the card responsibly, your good payment history will be reflected on your credit reports.

Rebuilding credit. If you’ve made financial blunders that have negatively impacted your credit score, getting back on track with a store card is an option you can try before having to resort to a secured card, which will require a deposit of several hundred dollars.

Cons

High interest rates. The average APR for new store credit offers is 24.97%,  compared to 16.91% for credit cards in general. With such high APRs, you don’t want to roll over a balance month to month on these cards or you may fall into a debt spiral, finding it ever more difficult to dig your way out of debt as interest charges pile up. Plus, any interest you pay will effectively negate any discount you got for using the card in the first place.

Low credit limits. While a retailer may increase your credit limit over time with responsible use of a store card, your initial credit line on a new store may just be a couple hundred dollars. If the amount of your purchases regularly comes close to maxing out your credit limit, your credit score will be negatively affected, as credit utilization (your balance compared to your credit limit) accounts for 30% of your credit score.

Read 6 Simple Steps to Improve Your Credit Score

Increased temptation to spend. Knowing you’ve got access to retailer credit, even though you don’t have the cash to spend, can make it too easy to rack up purchases you otherwise you couldn’t afford. And if you don’t have the funds to pay off the balance at the end of the month, you’ll be socked with sky-high interest charges.

Limited rewards redemption. Store card rewards programs typically require cardholders to use their rewards, cash back or points at that particular retailer or its affiliates only.

Deferred financing traps. If you apply for a 0% deferred financing credit card offer where you are given a fixed period of time to pay off a purchase without incurring interest charges, know that you run the risk of being hit with back interest from the time of purchase if you don’t pay off the balance during the 0% promotion time frame.

Hard inquiry. Anytime you apply for a new credit card, the lender will review your credit file to evaluate your creditworthiness. This is called a hard inquiry and will knock a few points off your credit score. The good news is that the inquiry’s impact will only last a year.

Read Minimize Rejection: Check if You’re Pre-Qualified for a Credit Card

Tips for staying out of trouble with store cards

Have a payoff plan. If you apply for and use a store card specifically to take advantage of a discount or promotion, have a plan in place for paying off the balance before interest charges accrue.

Resist overspending. Leave your store card at home unless you have a specific purchase in mind — that way you won’t succumb to impulse spending if you happen to walk in the store and have the card on hand to make unplanned purchases.

Make multiple monthly payments on high balances. To maintain low credit utilization on a low-limit card, it can be smart to make multiple payments online throughout the month. Better yet: once you make a purchase with the card, pay it off the next day online.

Cancel the card if it leads to too much temptation. While canceling a card can hurt your credit score, being buried in debt you can’t easily pay off is worse. If having a store card makes it too easy to spend beyond your means, you’re better off without it.

Bottom line

Store cards are great if you’re looking for a way to build or rebuild your credit score as they’re generally much easier to qualify for, but they can be dangerous if they tempt you to spend more than you can afford to repay. If you’re not careful, the high APRs and low credit limits that are often associated with store cards can quickly lead to trouble. But if you shop regularly at a retailer, being able to access discounts on a regular basis can help you save money, as long as you’re diligent about paying off the balance in full by the due date.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Julie sherrier
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Julie sherrier is a writer at MagnifyMoney. You can email Julie here

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View Your Free FICO Score for all 3 Credit Bureaus

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication. This site may be compensated through a credit card partnership.

View Your Free FICO Score for all 3 Credit Bureaus

There are lots of free credit scores floating around, but most of them are not the true FICO® score that lenders subscribe to and use as part of their decision.

However FICO® is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

The easiest place for anyone to get their free FICO® score is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO® score for free. The data is from the Experian credit bureau.

You can also get a free Experian FICO® 8 score at freecreditscore.com. While that site used to require you to enter your credit card to get information, your FICO® score and Experian report are completely free with no credit card information needed.

To find out where to get your FICO® score from the other credit bureaus, read on.


Every bank chooses at least one of three credit bureaus to calculate a FICO® score: Equifax, Experian, and TransUnion. The FICO® score one bank uses can be different than another depending on which credit bureau they pulled a report from.

The good news is, you can now see your real, free FICO® score from all three credit bureaus depending on which banks hold your accounts. FICO® itself charges $19.95 a month for you to see those scores, though they also throw in full copies of your credit reports, which the free bank scores do not.

Here’s where to find your real, free FICO® scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available with: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Score updated: Monthly
  • Where to find it: On your online account or the Citi app
  • Learn more

DCU Credit Union

  • Available with: Any credit card, or a checking account with direct deposit
  • Score updated: Monthly
  • Where to find it: Look for an invitation in your online account
  • Learn more

Huntington Bank

  • Available with: The Huntington Voice credit card – you will get a FICO® Bankcard Score 2 from Equifax
  • Where to find it: Log into your account and you’ll see a link

PenFed

  • Available with: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score updated: When PenFed refreshes – no set schedule
  • Where to find it: Login to your account and click ‘Your FICO® Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO® score that has a different scale than traditional FICO® scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

State Employees Credit Union of North Carolina

  • Available to all credit card holders

Experian Scores

Capital One and American Express regularly use Experian’s FICO® among others for credit decisions.

American Express

  • Available with: Any American Express credit card
  • Score updated: Monthly
  • Where to find it: On your online account

Chase

  • Available with: Chase Slate®* accounts
  • Score updated: Monthly
  • Learn more

Discover

  • Available with: All Discover cards and if you are not a Discover cardholder, you can sign up to get your FICO® score for free by visiting creditscorecard.com.
  • Score updated: Monthly
  • Where to find it: On your statement and online

First National Bank of Omaha

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

Wells Fargo

  • Available with: Any Wells Fargo credit card
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

Please note: a previous version of this blog post noted that USAA provides a free FICO® credit score. USAA actually provides a free VantageScore.

TransUnion Scores

Bank of America

  • Available with: Select credit card accounts
  • Score updated: Monthly, with history
  • Where to find it: Link available on your account summary page under the ‘Tools and Investing’ section

Barclays

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: Link available on your account summary page

Walmart / Sam’s Club

  • Available with: Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card
  • Score updated: Monthly
  • Where to find it: At Walmart.com/creditlogin, only if you enroll in online delivery of monthly statements
  • Learn more

Unknown Bureau

Other, less open to the public free FICO® providers include:

  • Ally, for auto loan holders
  • Hyundai and Kia Motor Finance allow customers to view their FICO scores through their online accounts.
  • Sallie Mae offers a free, quarterly TransUnion score if you receive a new Smart Option Student.
  • Merrick Bank doesn’t have open applications for its Platinum Visa, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

Find the Best Credit Score for Your Needs:

The credit score that you are looking for varies, depending on what type of credit you are looking to apply for. Each credit score version has different benefits, and lenders pull certain scores in accordance with your application.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

If you’re simply looking to monitor your credit score and stay on top of your credit, either VantageScore or FICO® score will suffice.

New Credit Card

The best options: FICO® Bankcard Scores or FICO® Score 8 primarily; FICO® Score 3

Where to get them: Get your FICO® Score 8 from Credit Scorecard by Discover or freecreditscore.com

When applying for a new credit card, these scores are most likely to be pulled by credit card issuers. Lenders may pull your score from one or all three bureaus.

Mortgage Loans and Mortgage ReFis

The best options: FICO® Scores 2, 4, 5

Where to get them: Myfico.com for $19.95 a month

These scores are used in the majority of mortgage-related credit evaluations, with lenders pulling your score from all three bureaus. However, these scores are not free and can only be purchased at myfico.com.

Auto Loans

The best options: FICO® Auto Scores 2, 4, 5, 8, 9

Where to get them: Myfico.com for $19.95 a month

Auto scores are industry-specific and used in the majority of auto-financing credit evaluations. Lenders may pull your score from one or all three bureaus. Unfortunately, these scores are not free and need to be purchased at Myfico.com.

Personal Loans, Student Loans, and Retail Credit

The best option: FICO® Score 8

Where to get it: Credit Scorecard by Discover or freecreditscore.com.

For other financial products such as personal loans, student loans, and retail credit, FICO® Score 8 is best. This is the credit score most widely used by lenders, and they may pull your score from one or all three bureaus when making a decision.

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Credit Req.

Minimum 500 FICO®

Minimum Credit Score

Terms

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months

Origination Fee

Varies

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A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Other Scores and Their Value

FICO® Score 9 is the newest model and not widely used yet. It is also not available for free at this time. The benefits of this score are that it doesn’t penalize you for paid collections and reduces the ding you get from unpaid medical collections. See our review for more information.

The FICO® NextGen score is used to assess credit risk, but only a small number of lenders use it due to its 150-950 scoring range and older model.

*The information related to the Chase Slate® has been collected by CompareCards and has not been reviewed or provided by the issuer of this card prior to publication.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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