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7 Ways to Improve your Credit Score

Your credit score is more than just a number – it’s a crucial factor that impacts your financial well-being in our world today.  To say that you can ignore your credit score, for most people, would be wrong!  Whether you’re planning to buy a home, get a line of credit or even get an excellent insurance rate, having a solid credit score can make all the difference. In this episode, we’ll explore some of the reasons for Credit along with a handful of actionable strategies to boost your credit score to unlock greater financial opportunities that would benefit the good steward of God’s resources. From understanding credit utilization to mastering payment history, we’ll delve into proven techniques that can help you take control of your credit health, and at the end of this episode, we will lay out why a good steward ought to be in tune with their credit score.

What is a Credit Score?

A credit score is a numerical representation of an individual’s creditworthiness, typically ranging from 300 to 850 in the United States.

It is calculated based on information from the individual’s credit report, which includes data about their credit accounts, payment history, outstanding debts, and other personal financial behaviors.

Lenders and financial institutions use credit scores to assess the risk of lending money to an individual and to determine the terms of credit, such as how much they are going to charge you for borrowing the money (called “interest rates”) and also to set a limit of how much they are comfortable in lending you at one time.

Credit scores are generated by credit scoring models developed by various companies, with FICO® Score (a measure of consumer credit risk) and VantageScore (a consumer credit-scoring system in the United States, created through a joint venture of the three major credit bureaus) being the most common ones.


What is a “good” Credit Score?

“For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2023, the average FICO® Score☉ in the U.S. reached 714” (Experian). 

As of 2024, The average FICO credit score in the US is 717.   The average VantageScore is 701 as of January 2024.  These scores put most people in the “good credit” range, not very good or excellent (Business Insider). 

 

What Factors go into my Credit Score?

  • Number of credit accounts
  • Payment history
  • Outstanding debts
  • Length of credit history
  • Credit utilization
  • Recent credit inquiries

 

Why is a Credit Score Important?

A higher credit score indicates lower credit risk and typically leads to more favorable loan terms, such as lower interest rates and higher credit limits.  A lower credit score suggests higher credit risk and may result in less favorable terms (higher interest rate) or even difficulty obtaining credit. 

Maintaining a good credit score is important for accessing credit, obtaining loans, renting an apartment, securing insurance, and even qualifying for certain jobs.

 

What if I don’t have a credit score?

People get credit card offers all the time, even if you don’t have a credit score. One way to get some credit on your account is to open an introductory credit card to help you start building credit!  Now, not everyone who applies will get approved!  You may think so, but that is why there is an approval process.  Case in point, my daughter applied for multiple local store credit cards and was turned down each and every time.  The only way she was to start a credit journey was through this next step…and that is…

You can also apply for a secured credit card.

Many also say that it is easy to get a retail store credit card.  It is…for most, but for some, it still may be a challenge.

Another way you can start to build your credit score is to become an authorized user on a family member’s credit card to help you start building credit.  In doing this, you are initially riding on the coat-tails of that family member to get your credit journey moving. Next, we will discuss 7 ways to improve your credit score.

 

7 Ways to Improve your Credit Score

Improving your credit score is an important step towards achieving financial stability and accessing favorable loan terms. Here are 7 ways to improve your credit score:

  1. Check your credit report: Start by obtaining a copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion). This may take some time, but line by line, review your report for any errors, such as inaccuracies in account information or fraudulent activity. If you find anything in any of the reports that is not accurate, contact the credit agency and file a dispute explaining the inaccuracies to ensure your credit report reflects accurate information.
  2. Pay bills on time: Payment history is one of the top…most significant factors influencing your credit score. Make sure to pay all your bills, including credit card bills, loan payments, along with utilities, on time, each time, every month. Setting up automatic payments or reminders can help you stay organized and avoid late payments.
  3. Reduce credit card balances: Now, you know where I am going to go if you are a regular listener, and that is, PAY OFF THE CARD IN FULL EACH AND EVERY MONTH!  DON’T CARRY ANY BALANCE ON ANY OF YOUR CREDIT CARDS!  But if you cannot do that right now…aim to keep your credit card balances low relative to your credit limits. High credit card balances WILL negatively impact your credit utilization ratio, which is the ratio of your credit card balances to your credit limits. Paying down credit card debt WILL improve your credit utilization ratio and positively affect your credit score.
  4. Limit new credit applications: Each and every time you apply for new credit, a hard inquiry is dinged and recorded on your credit report, which can temporarily lower your credit score. Be selective about applying for new credit and avoid opening multiple new accounts within a short period, for this will certainly impact your credit score.
  5. Keep old accounts open: The older the account, the better!  The length of your credit history is another important factor in determining your credit score. Keep old accounts open, even if you’re not actively using them, to maintain a longer credit history. As good as it may seem to close out old and non-used credit accounts, remember that when you do so, it WILL shorten your average account age and afford you a lower credit score.
  6. Diversify your credit mix: Having a mix of different types of credit accounts, such as credit cards, installment loans, mortgages, and home equity lines of credit can positively impact your credit score. If you don’t already have a diverse credit mix, consider responsibly adding new types of credit over an extended period of time. At the same time, don’t go get a loan just for the sake of raising your credit score!
  7. Be patient and consistent: Improving your credit score is not as simple as applying for better credit and getting it over night!  Improving your credit score takes time, possibly years, along with very good and consistent financial habits. To increase one’s credit score, you have to stay focused on practicing those good credit habits, such as paying bills on time and managing credit responsibly, and be patient as you work towards achieving your credit score goals.

By implementing these strategies and staying proactive about managing your credit, you can gradually, over time, improve your credit score and strengthen your overall financial health.

 

How Long Will it Take for My Score to Go Up?

From Bankrate:

“Raising your score depends on your starting point.

After learning those 7 ways to improve your credit score, it is important to take action. Your credit score isn’t just a judgment call; it’s determined through a formula that considers five primary factors. Listed in order of importance, each of the following factors can raise or lower your credit score:

  • Payment history (35 percent)
  • Credit utilization (30 percent)
  • Length of credit history (15 percent)
  • Credit mix (10 percent)
  • New credit (10 percent)

The following data from Bankrate.com is an estimate of recovery time for people with poor to fair credit, from:

Event Average credit score recovery time
Bankruptcy 6+ years
Home foreclosure 3 years
Missed/defaulted payment 18 months
Late mortgage payment (30 to 90 days) 9 months
Closing credit card account 3 months
Maxed credit card account 3 months
Applying for a new credit card 3 months

 

Stewardship Application

At the beginning of this episode I said that at the end we would broach the subject of  why a good steward ought to be in tune with their credit score.

Here is the reason:  A good steward should have an excellent credit score…because it is not just about numbers, it is about having a good testimony (making God look good) among creditors (and peers) along with having integrity with one’s finances!

Testimony, integrity, and stewardship!!

As for testimony, we have a choice in what we say…and do…to either make God look good and glorious or not!  Our actions and operations can tarnish the Lord’s name before others (non-believers and believers alike) thus repelling people away from the goodness and grace of our blessed Savior!

Integrity: Simply let your ‘Yes’ be ‘Yes,’ and your ‘No,’ ‘No’; anything beyond this comes from the evil one. (Matthew 5:37, NIV84)

If you are committing to borrowing money, or you have…operate with integrity and make your payments.  Let your yes be yes…and since they agreed to lend you the money, you should in turn, agree to make full payment back, plus interest!

Stewardship:  Stewardship is realizing that all that you have in your care is from God, and that includes all your income that pays your bills.  The good steward will not have obligations that go above what they bring in monthly!  A good steward lives within their financial means, pay their obligations on time, each time, and would use credit sparingly as to utilize God’s money in your care for greater Kingdom purposes.   

 

Next Steps

 

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The topics discussed in this podcast are for general information only and are not intended to provide specific investment advice or recommendations.Investing and investment strategies involve risk including the potential loss of principal. Past performance is not a guarantee of future results.

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