6 Simple Steps to Improve Your Credit Score

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Updated on Wednesday, June 5, 2019


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, which is called your utilization rate (the amount of debt you have compared to your overall credit limit). Credit use makes up 30% of your overall score. The lower your utilization rate, the better for your credit score.

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

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 different types of credit accounts.

If your score isn’t where 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 credit or loan account reporting to the big three credit bureaus (Equifax, Experian and TransUnion). 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 your credit score improves, you can then apply for an unsecured card and get back your deposit when you close your secured card account.
  • Store Card: People with low credit scores 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 and the credit limits low, so you should do your best to pay off your balance every month. [Read more here]

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, it 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 to pay off in a few months or less.

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 after 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 unless you truly don’t have a need for that card anymore. Closing your cards will not only lower your utilization rate but shorten your credit 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 cardholder.

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.

Once you get your credit score above 680, the good credit card offers should 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.