When I finally decided to get my financial life in order, my credit score was my biggest priority. I was downright obsessive. I checked my score weekly—a feature offered by my credit card company—and analyzed every ebb and flow to figure out how to improve it. My score started out in the not-great range and I was determined to improve it rapidly.
Getting great credit, especially if you have to rebuild your credit history, is difficult. If you had financial difficulties in the past like I did, like missed bills or hefty credit card debt, it takes real work. When I started my journey, I had the trifecta of consumer debt: credit cards, student loans and a car loan. It took a lot of time and effort to rebuild my credit score.
While I stumbled along the way, I eventually got my score over 800. It now rests solidly at 805, and while that’s not a “perfect” score of 850, it puts me firmly in the “excellent” category when lenders look at my file. That means I get the best offers on credit cards or auto loans, and I never have to worry about an apartment application getting denied. Great credit opens doors for me that I never expected and it was well worth the work.
Don’t be discouraged if you are starting out with poor credit, or no credit at all. If your credit score is not where you need it to be to get the best interest rates and credit offers, you can take action and better your credit.
How to Improve Your Credit Score
These are the steps I took to improve my credit:
1. I consolidated my debt
With consolidation, you essentially take out a loan that covers the cost of your debt, and use it to pay off your high-interest credit cards. Then, you pay back the loan at a lower interest rate and have one easy payment.
While consolidating credit cards is not for everyone, I did my research and decided it was for me. Despite paying my credit card bills every month, the interest rates were so high I never made any progress on the principal. By taking out a personal loan to consolidate my debt, I got a much lower rate. My monthly payments made a larger dent in the principal. And by using the loan to wipe out my credit cards, my credit utilization ratio improved. That raised my score right away.
2. I asked for a credit increase
Your credit score is partially determined by your credit utilization ratio. That ratio is how much of the available credit you have compared to how much of a balance you carry each month. By boosting the credit line, you improve the ratio.
With my new and improved credit score, I called the credit card companies I had accounts with and asked them to raise my credit line. I had no intention of racking up any more credit card debt, but I knew having access to more credit would improve my credit ratio even more. The companies were more than happy to raise my credit line, and my score got boosted by another 20 points within one month.
3. I established a “debt avalanche” plan
Some financial experts recommend paying off the debt with smallest balance first, so you get a small win and gain momentum. I decided against that, as it would have cost me more in interest.
I listed my debts according to their interest rate, ordering them from highest interest to lowest. With my credit cards wiped out, I had my personal loan, student loans and car loan. The student loans and car loan had lower interest rates, so I paid just the minimum on them. But for the personal loan, which had a higher rate, I paid every extra dollar.
Any gifts, money from side gigs or profits from selling stuff at a yard sale went towards the personal loan. With laser focus, I was able to reduce my balance and improve my credit at the same time.
4. I set everything on auto-pay
One of the biggest factors impacting your credit score is your record of timely payments. To ensure I never missed a payment, I set up auto-pay for all of my debts and all of my bills, like utilities, cable or cell phone. That meant I had to keep a larger cash reserve in my checking account to ensure there were enough for the auto-pay, but the peace of mind was worth it.
5. I reviewed my credit report every four months
You are entitled to a free credit report from annualcreditreport.com. You can get a copy from one of the three credit bureaus—Equifax, TransUnion and Experian—once a year. I split the year and took out a credit report from one of the bureaus every three months. That way, I had the latest information and could correct issues right away, without having to wait a year in between report to notice a problem.
Thanks to that diligence, I found that a late library book was killing my credit score and was able to take the steps to fix it. While my situation was an odd one, reviewing your credit report can help you find more serious issues, such as identity theft.
Take action to achieve a great credit score
By taking these steps, I was able to dramatically improve my finances and my credit score. In the course of 18 months, I was able to get my credit score over the 800 level. It took a lot of dedication and work to get there, but having great credit is essential. My score will come in handy when it comes time for my next big purchase, like buying a new car or a new house.
When you are just starting out or recovering from a poor financial situation, improving your credit score can seem impossible or overwhelming. But it can be done if you are proactive and focused. Following these steps can get you on the path to good credit and more secure finances.