How To Increase Your Credit Score

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I get it! Much of our lives are on the go and it just feels easier to use plastic to pay for purchases! But, if you are not tracking your budget on a line item detail, you may forget that you swiped that card earlier to pay for your purchase! This can get very habitual and is also very tempting! I see the same things in the store fronts, and think how cute it would look if I had that exact same purse, or dress, or outfit. Unfortunately, getting into debt for a purse that will make us feel good in the moment, may not make us feel good in the long run. In this blog post I share with you my experience of increasing my credit score in hopes that it will help inform you of what decisions you need to take in order to also increase your credit score.

1. Stop Using Your Credit Cards
My very first piece of advice is to stop using your credit cards irresponsibly. I know, this sounds intuitive, right? But, nonetheless people still need to be reminded of the obvious. Experian, one of the largest credit reporting agencies, completed an annual State of Credit survey based on 2017 data in which it would appear that on the National level, not only does the average consumer think it is good for their credit score to carry a balance, but they also have about $6,375 in credit card debt with an average credit score of 675. In California the average credit card debt is $6,481 with an average credit score of 680.
Credit cards are just SOOOOOOOOO easy to use, trust me -- I speak from experience! There they are sitting in your wallet, waiting to be swiped on your next purchase. Therefore, your first step is to start creating a better relationship with your credit cards rather than an abusive one. Before each swipe of your credit card think twice about it, and ask yourself these questions:

  • Can I pay cash for this purchase?

  • Do I have enough in my checking account to pay for this purchase when the credit card statement arrives?

  • Do I plan to pay this purchase off as soon as I get my credit card statement?

You don't see the amount of money you will owe in interest when you are out shopping and using a credit card. Once you stop using your credit cards and start paying off good chunks at a time each month, you will notice credit score increases! In my blog post on Credit Card Do’s and Don’ts I talk about what it would look like if you were to incur interest charges over the course of five years. And, whatever you do, do not overspend on your credit cards. If you overspend on your credit cards you may end up like this or even like this!
2. Get A Better Interest Rate or Credit Card
The next thing you will need to do is to call your credit card company. When you call them, ask if they are able to provide an interest rate reduction on your larger credit card balances. If you have been a good steward, in that you have been paying on-time for a while now, they should be open to this idea. Also, let them know that you are working hard on paying down your card, but you need their help. The worst thing they can do is decline you -- and if they do, I have a suggestion I will explain in the next paragraph. While you are on the phone with them also make sure that the timing of when your payment is due actually works for your budget. Perhaps your bill is due towards the beginning of the month and that oftentimes can conflict with your rent or mortgage payment.
The following piece of advice should come with a disclaimer. Now, I do not want you to follow this advice if you are prone to abusing your credit cards. This next step includes finding a better credit card. Here’s what I mean by a “better” credit card; the company will allow you to transfer your balance from your highest interest credit card at a zero percent interest rate for the first year. Yes, I am saying to apply for a new credit card! Move your largest balances over, and create a plan to pay that large balance off in twelve months. This means that the plan you create to pay off your credit card balance over the next twelve months will not accrue interest charges, and the payment is going directly to the debt balance instead of the interest. Not only will this help alleviate the money you would spend on interest charges, but opening up a new line of credit responsibly looks very good on your credit report in the long run. In the short run, your credit will take a small dip.
The best part is there are already websites that allow you to monitor your credit report for FREE. PLUS, these services, like WalletHub or Quizzle, also make offers for credit cards that are doing exactly what I suggest. The process is fairly simple, easy, and smooth. Once you enter your information into their website, you can create a *free* account, and then they do an analysis of your credit and make suggestions based on spending trends, debt, and income. But, we must get one thing straight! This new credit card is not for shopping!
3. Stick To The Plan
Paying off a high balance credit card is hard work! It takes discipline and lots of saying “no” to events, and hangouts with friends. You will need to apply yourself very diligently. Part of personal finances is planning out specific aspects of your life that have dollar amounts attached to them. So, identifying those times where it might be hard for you to say no, is the first part of sticking to the plan.
Are there certain people in your life that are always wanting to go out? Whether that be out to dinner, to see a movie, or shopping; all of these activities have a cost associated with them. So, the next time someone invites you to go out, suggest a low-cost activity like going for a walk or to the library; maybe have a “bring your own lunch” picnic in the park. There are plenty of activities you can do to spend time with your friends and loved ones that does not require money! Once you start on the plan and get used to thinking outside the box for free, or cheap things to do, you will notice how it starts to become easier for you.
At this point it might be best if you start thinking in terms of where you see yourself in one year, in two years, in five years, and so on. Thinking of very specific life goals is also helpful in the scenario. Perhaps in two years you do not want to have any debt! So, make the strides now to pay off that debt.

4. Monitor Your Credit Report
Monitoring your credit report is so very important! It is good practice to always make sure that you read through your credit report the very first time you get it to ensure your names, addresses, and events listed are yours.
Then, you want to continue to monitor your credit report on a consistent basis. This will ensure the activity that happens on your report are in fact yours, but that you will notice trends on the data that is provided to you. If you do not use one of the free credit monitoring services, you can always check your report through annual credit report. You can do this at least three times per year for FREE. The key is to make sure you only use one of the credit reporting agencies (Equifax, Experian, or TransUnion) each time. See my previous blog post for more details on what makes up a credit score!
5. Celebrate Your Wins
Being on a budget is hard work! Do not forget to take some time to celebrate your wins in a frugal manner. Once you master your credit card or consumer debt, moving on to add new lines of credit is your next step, but we will not be talking about that here -- keep your eyes on the prize first!
As always, friends, I am here to help and support you on your personal finance and budgeting journey. You can always send me an email to schedule a free no-obligation 30 minute phone call to discuss your needs!

Edrina Calderon