General Question

Lacroix's avatar

How can I improve my credit score?

Asked by Lacroix (537points) December 8th, 2009

I’m in the process of trying to rebuild my credit (just bad spending habits when I hit 18), and I’ve repaid everything I owed…now I just need to get some GOOD credit on my rather limited credit history.

I know about paying bills on time and taking out a secured credit card, but this morning my mom suggested taking out a secured loan, too, and paying it back over a year. So I was wondering if I was missing any other little things I could be doing to build up good credit.

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14 Answers

Val123's avatar

Get a very low available balance ($500 a month) credit card, spend no more than $300 a month, and pay it off every month. The credit people aren’t impressed by you maxing out out your card, even if you pay it off (gives the impression you’re pushing your limit) and they aren’t impressed with how much you spend, they’re impressed by your restraint and consistency.

ninjacolin's avatar

one tip i’ve heard but haven’t verified: keep a balance on a line of credit (eg. a credit card or a loan) above 50% and below 76% for a period of time.. maybe 6–8 months.
never be late. keeping this ratio gives you the best ratings for as long as you have it.

but your credit only needs to be so good, so don’t do this if you already have good credit.

YARNLADY's avatar

The best way to develop good credit is to always pay back what you borrow. That is the number one way to prove you are credit worthy. If you already have made some mistakes, such as borrowing more than you could afford, it will take longer to build lender confidence back up the , but as long as you never borrow more than you can pay back, your credit rating will improve.

mowens's avatar

Pay your bills.

I’ve never had a late payment, I never carry a balance month to month. My car is not paid off, neither are my student loans. I have a 785 Credit score.

I hear that if I carry a balance for one month then pay it off, I will have a higher score.

But my brain doesnt understand credit cards, If I dont have the money for something, I dont buy it. I cant understand why ppeople by things they dont need on credit… it doesnt compute with me.

Well I understand why they do it, but it doesnt compute with me.

JLeslie's avatar

Don’t get a loan if you don’t need it. Pay everything in full on time every month. Don’t use your credit cards to the limit, even if you pay off every month in full, because your available credit affects your score. Here is a link with some advice. and here is another one

From the last link it clarifies the 5 main categories that are evaluated in your FICO/credit score:

Payment history (35%)
Outstanding balances (30%)
Length of credit history (15%)
New Credit (10%)
Types of credit (10%)

There are more details about each on the web page.

nope's avatar

I agree with a lot of the above, except for spending on your credit card & paying it in full every month. It’s a fact that you will develop better credit by actually carrying a balance. The credit companies look at how responsible you are with your available credit, so they want to see a balance, but one that’s not too high in relation to your available credit limit. They also look for regular & on-time payments, and monthly payments that are ABOVE the minimum amount. So if, for instance, you had one or two credit cards with a $1000 limit, carry a balance of $100–200 for a while on each one, do regular charges, and don’t pay them off completely, but pay more than the minimum required amount. If it’s more comfortable for you, pay one or both completely every few months, then carry a small balance again. This should help you raise your score pretty quickly.

Lacroix's avatar

Alright, as I said in my post I knew the whole thing about paying on time (so I’m not sure why it was recommended again and again), but I didn’t know that it was actually helpful to keep a bit of a balance out instead of paying it off quickly and immediately. Thank you, @Val123 , @ninjacolin , and @nope !

JLeslie's avatar

@nope it is considered a balance on your credit card as long as there is charges on your credit card whether you pay in full or not from what I understand. For instance I currently have $1600 on one of my credit cards this month, but I will be paying it off once the bill comes, that $1600 is my current balance. If I were applying for a loan the $1600 would count as money curently owed. My husband and I ALWAYS pay on time in full, always have and my credit scores last I checked one of the services was 785 and my husband at times is above 800. Currently we have no mortgage and no car leases or loans and we still have very high scores. We do charge everything.

Carrying a balance on a credit card is the biggest waste of money going. It is like throwing money out on the street. I think the rates they charge should be illegal, it is like loan sharking.

Val123's avatar

Actually, to be certain, check with your bank. They’re the pros at how it works.

@JLeslie agreed.

JLeslie's avatar

Just to clarify here is the explanation of outstanding balance from my link:

Outstanding balances (30%)-Evaluation of your total balances in relation to your total available credit on revolving accounts is one of the most important factors in the FICO score. Owing a great deal of money on many accounts or “maxing out” on various credit cards can indicate that a person is overextended, and is more likely to make some payments late or not at all.

It is about the realtionship between open credit and how much you have used. The card I have $1600 on has a limit of something like $17,000 or some ridiculous amount, that is why I look like a safe bet, I am not close to being maxed out and I pay on time.

nope's avatar

@JLeslie I agree with you, with one clarification. It depends on when your credit card company reports your balance. If they report it right after the statement close, after you’ve paid the balance, it will look like you always have a zero balance. I have some that report that way, and others that report in the middle of the statement period, it seems to be really inconsistent. Your credit card company should be able to tell you when they report. That’s all I was talking about

Obviously, too, it’s more expensive to carry balances, because that results in interest charges, but for small amounts, the interest is miniscule.

JLeslie's avatar

@nope I have never heard of this reporting problem. I am not saying you are incorrect, I have just never heard of it. My credit card always has something on it because if the month closes on the 3rd, most likely I have charged something on the 4th. I charge everything, groceries, gas, restaurants, clothes, everything. $20 cash in my wallet can last 3 weeks.

I still say always pay the bill in full.

YARNLADY's avatar

@JLeslie I bleieve that you are correct. We make continuous purchases on our credit card, and pay it off at the end of every month, in full. When the balance on the statement is paid, there are still charges pending, because they were made after the statement closing date. The card has a “balance” but the “amount due” was paid in full, therefore zero interest was paid.

JLeslie's avatar

@YARNLADY Yes, exactly what I meant.

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