7 Steps to Improve Your Credit Score While Decreasing Debt

6 minute read

Everyone wants to improve their credit score.

While the importance of credit scores is overrated, the interest in them is understandable. Your credit score is typically connected to one of life’s most significant financial decisions — buying a home. If you plan on financing a car, using a lot of credit cards, or applying for a loan for some other reason, your credit score will be a huge factor in all of those scenarios as well. Obviously, I’m not recommending this because I believe it’s wiser to pay cash for consumer items so that you can avoid loans and revolving credit card debt.

Phillip was able to raise his credit score by over 30 points in two months by following these steps.Click To Tweet

There is a lot of bad advice out there regarding improving credit scores. Finance blogs and books encourage you to rack up debt to build your credit score. Often, this leads to more consumer debt and bad money habits.

I’ve done the research and was able to raise my credit score by over 30 points in two months, and if we had more cash flow, we could have done better. These tips will help anyone, but I’ve written them specifically for people who are trying to get out of debt entirely and would like to improve their credit score in the process.

So if you already have a credit score and you want to improve it, here are some tips that can help you increase your credit score without going deeper into debt.

1. Get access to your credit report.

I found a website that gave me access to my credit report. I use creditkarma.com because I can monitor my credit for free and my score updates weekly. Be careful using sites like Credit Karma. The website is full of affiliate links and ads that encourage users to transfer balances, refinance loans, or apply for low-interest credit cards. The advice might not have your best interest in mind. Another website that will give you your credit report is Annual Credit Report. I’ve never used it, but it comes highly recommended by several reputable sources. But your annual report does not include credit scores.

2. Request to have any late or missed payments removed.

After looking carefully through your report, look for any late or missed payments. If you discover any, contact Transunion, Equifax, or Experian and ask them to remove these from your history if they’re seven years old or older. If it’s bankruptcy, do the same thing if it is more than ten years old.

3. Pay your bills on time.

Payment history is significant because it aids lenders in assessing how likely you are to pay your debts on time in the future. The grading scale doesn’t leave a lot of room for error. If you’ve made 100% of your payments on-time, you’re in excellent condition. 99% is good condition. 98% is considered fair condition. 97% and below is considered bad condition.

A high credit score should be a by-product of healthy financial pursuits, not the goal.Click To Tweet

Set up auto payments to avoid missing payments. Have it automatically draft the minimum payment and add whatever extra you plan to pay towards it. If it’s a loan, make sure you pay the extra amount towards the principal.

4. Don’t close credit card accounts once you pay them off.

Closing accounts hurt a credit score in two ways. First, it could reduce your credit age. Second, that zero balance is no longer counted towards the credit score.

Credit age is a crucial factor. Lenders look at it to see if borrowers have experience using credit responsibly. Closing accounts reduce the average age, which harms a credit score. A zero balance helps this significantly while working to pay off debt. But if you close an account once you pay it down, you can’t benefit from the zero balance because it’s no longer apart of your report.

Use your credit score but don't let it enslave you.Click To Tweet

It’s important to consider changes to annual rates and fees when deciding not to close an account. But if you’re trying to improve your credit score, annual fees might be worth it, and you can avoid annual percentage rates by never carrying a balance (NEVER CARRY A BALANCE).

5. Prioritize putting extra money towards credit cards first vs. loans.

If your goal is to pay off debt, the snowball method is best. But if you’re looking to improve your credit score, prioritize credit cards. Making large payments on my credit card debt increased my score significantly as my balances decreased.

6. Stop using your credit cards.

Stop using your credit cards while you’re paying them down. After your balance is zero, you’ll have to use the card periodically so that the company doesn’t close the account due to inactivity. Don’t do this indefinitely and become a slave to your score. For example, if my main goal is to maintain my score to purchase a home at a low-interest rate, as soon as I reach my goal and moved into the house, I’m cutting those credit cards up and moving on with my life.

7. Don’t inquire or apply for new loans or credit cards.

Applying for a new credit card or loans decreases your credit score. Inquiries from loan or credit card applications may stay on your report for up to 2 years. So avoid applying for credit cards or loans during this process.

A By-Product, Not the Goal

Don’t obsess over your credit score. Despite popular opinion, you can do just fine without one and can even buy a house with a credit score of zero. But I realize that everyone will not go this route.

Don't obsess over your credit score. Despite popular opinion, you can do just fine without one and can even buy a house with a credit score of zero.Click To Tweet

As much as I admire Dave Ramsey, it’s unlikely my family will take this route. We’re aiming for somewhere between Ramsey (buy a house with a zero credit score) and our culture’s toxic money habits (obsess over credit scores while habitually racking up debt). But if you’re going to choose between the two, we obviously believe Dave Ramsey’s path is best.

Here are 7 steps that can help you increase your credit score without going deeper into debt.Click To Tweet

A high credit score should be a by-product of healthy financial pursuits, not the goal. I know a lot of broke people with high credit scores. They’re slaves to debt and have never outright owned a thing a day in their lives. They can get approved for almost any loan but they couldn’t pay for a nice dinner with cash. Use your credit score but don’t let it enslave you.

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About Phillip Holmes

Phillip is a seasoned writer and speaker who has worked with numerous clients to help them take control of their finances. Still digging his way out of debt, Phillip aims to speak and write with conviction, insight, and compassion. He is married to Jasmine and they have a little boy, Wynn.

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