I will never forget the first time I pulled my credit score. I was in my early twenties sitting around with college friends. One friend just received a letter regarding a medical bill in collections that he didn’t realize existed. So he decided to pull his credit report and credit score to see where he stood.
I thought to myself, I’ve never pulled my credit report before. I followed my friends lead and pulled my credit score too. I figured it had to be good. I mean, I paid my bills on time (for the most part). I only had one $800 credit card from college.
Boy, was I in for the shock of my life!
Staring patiently at the screen, it finally came up. My credit score was a 580! 580! No, that had to be wrong. I was mortified. I thought I was responsible. I thought my credit score would reflect that.
My credit score was only part of the story. Therefore, I took the following steps to raise my credit score.
Pulled Credit Report
It turned out there was a medical bill for a few hundred dollars showing in collections. I didn’t even know about it. I immediately called the collections company to negotiate the bill. They said I could settle the account for a lower amount but it would still appear on my credit report; however, if I paid the item in full, they would remove it. During the next pay period, I paid the bill in full.
Paid Down Debt
Remember that one $800 credit card that I mentioned earlier? Well, I failed to mention that every month it had an outstanding balance of at least $700.
Your credit score takes into account your credit utilization ratio – or how much debt you have compared to your credit limit. Therefore, I was using over 80% of my available debt. To creditors, it appeared that I was overextended. My next step was to pay down my credit card balance. I needed to get the outstanding balance down to at least $250.
Paid Bills on Time
Using most of the balance wasn’t the whole story on that $800 credit card account. In addition, the monthly payment was paid late on multiple occasions. Besides the fact that each late payment resulted in an ugly late fee, it was also being reported to the credit bureaus as a late payment.
Payment history accounts for 35% of your credit score. Therefore, those few late payments had a large impact on my score. From that moment on, I was determined to not make a late payment.
Increase Available Credit
This last step in the journey to raise my credit score took time. I went to the credit card company and asked for a credit limit increase. At first, I was denied the increase, but after asking a year later my credit limited doubled to $1600.
Credit limit increases are often frowned upon in the personal finance sphere but I love credit limit increases! Why you may ask? The more available credit you have makes your credit utilization ratio lower. Therefore, if I still had the $250 on that credit card and the credit limit is now $1600, my credit utilization ratio would be 15%. The important thing to keep in mind is just because you have the higher credit limit, does not mean you have to spend the additional money.
Ultimately, it took time to raise my credit score. Since initially checking my credit report and credit score, I check those items every few months. After checking my credit score earlier this week it was well in the 700’s.
At the end of the day, back then I didn’t understand my credit report or credit score. Check out this detailed post about credit report basics so you can understand what information is used to calculate your credit score. It took me years to raise my credit score but it doesn’t have to take you that long. There are many other techniques to improve your credit score. Are you interested in a free consultation of your finances?
There are many other techniques to improve your credit score. Are you interested in a free consultation of your finances? Click here for a free 15-minute consultation.
When is the last time you checked your credit score? What actions have you taken in the past or are you currently taking to raise your score?
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