I remember when I applied to move into my first apartment. I was told I didn’t have a credit score so I would have to have a cosigner. The first thought that ran through my mind was “Wouldn’t you rather take the chance on someone without a credit score, than on someone with a bad one?”
Related: What If You Had a Zero Credit Score?
How I Raised My Credit Score to 750
Sadly, not having a credit score can be just as hurtful as having a low score. Once I moved into my apartment, I made the decision to have a decent score by the time I was 21, and I succeeded. So how did I do it?
This post has been written by our regular contributor, Kimberly Studdard!
When I first moved out on my own, I didn’t really know what a credit score was. I was raised to pay cash for everything, so imagine my surprise when I learned that a credit score was how a lender evaluated whether or not you would pay off your debt.
After reading about credit scores and how they can affect you, I decided to check mine and see where I was starting at. Since I didn’t have any accounts or inquiries other than my first apartment checking for my score, I was starting off very low. My credit score sat at a paltry 350.
The good thing about checking your score first is that you are able to base your decisions of building your credit on a starting point. If you look at your credit score and realize you already have decent credit, you will find ways to maintain it. If you notice you have poor credit, you will be able to research and utilize ways to build it.
One of my favorite ways to check my credit score is Credit Karma. Every year I get my credit score checked through my bank, but Credit Karma is free to use and lets me see my score any time I want. The only thing to keep in mind is that it won’t always be completely accurate. For example, my score was two points higher than what Credit Karma stated the last time I had it checked through my bank.
Once I had my credit score in hand, I went to my bank and applied for a secured credit card. Because I had $1,000 in hand and a history as a loyal customer, they graciously accepted me and I became the owner of a new credit card.
The great thing about secured credit cards is that you are using your own money. You are borrowing from yourself, and if you choose to close your account or move banks, that money is yours to take and keep. However, the bank still has the right to charge you interest and earn money on any balances that you carry month to month.
I made sure to charge no more than $100 on my card every month and never carried a balance. But I did make sure to spend $100 every month no matter what to show that I was utilizing my card (mainly on gas and food and other things I was spending money on anyway).
Related: Find Your Ideal Credit Card
I Paid On Time Every Month
One of the easiest ways I raised my credit score was by paying on time every single month. I would mark my calendar with the dates that payments were due, and I would pay off any balances that I had a day or two before.
Not only does paying on time every month show that you are trustworthy, but it also shows that you can afford to make payments. 35% of your credit score is based on whether or not you pay your bills on time every month. No one wants to loan money to someone that can’t pay them back on time.
Now, I wouldn’t recommend this option to everyone (FYI, Derek NEVER recommends going into debt). However, for me it was very beneficial. In college, I didn’t have to worry about student loans. I was fortunate enough to have a full ride through multiple scholarships and grants.
Since I didn’t receive any help from my parents, my day to day expenses were quite higher than most commuter students. I had a little padding in my savings account, so I decided to take out a small personal loan of $1,000 and spend it towards bills and upcoming expenses.
I got a decent rate through my bank at 11% due to the fact that I had a credit card through them. After about 4 months of above minimum payments (including interest charges) I paid off the entire loan. I checked my credit report a few months later and noticed that my credit score jumped from 615 to 630. Not too shabby for a few months of payments!
Keep in mind that when you apply for a loan like this, your credit score will be checked and it will most likely dip. Also, sometimes paying off a personal loan can negatively impact your score. I was lucky enough to see a score increase, but that may not always be the case. Always talk to a professional if you are unsure.
I Keep Cards Open
Credit history accounts for 15% of your credit score. While that may not seem like much, you can think about it like a grade. Say a teacher tells the class that the people who show up every day, on time, will automatically get 15% of their grade. If a student decided to skip every class, but still did really well on tests and assignments, the BEST score they would get would still be an 85%.
With that being said, if it’s not hurting to keep an account open, why not do it and earn participation points? I now have three credit cards, and I hardly ever use two of them. I use one for my monthly pet insurance, one for gas, and one for a night out with my husband every now and then.
I’ve had two of the cards for almost the entire three years, and one card for about a year and a half. By keeping these cards open and active, my credit score has slowly crept up. Imagine what three years can do for your participation grade.
I Keep Hard Inquiries To A Minimum
So imagine this…you are a new college graduate and you just got your first real adult job. With that new job comes new ways to add responsibility to your plate. Now, if you were smart, you’ve already done your research on budgeting, and you know what you can and can’t afford. If you weren’t so involved in your financial planning, you will most likely start applying for a bunch of “little things”.
Now these little things could be applying for a mortgage or apartment, getting a car loan, applying for a contract for a cell phone, getting a new credit card, or even opening a checking and savings account. Every single time you are applying to these, your credit report is being pulled. This is what they call a hard inquiry. It basically means a financial institution is checking to see if you are worthy of their time and efforts.
Whenever you have a hard inquiry, your credit score drops a few points. Can you imagine if you had 5 different inquiries in the span of a few months? That credit score that you may have worked for, or didn’t exist at all, now looks terrible.
In the past three years, I have only had 4 hard inquiries (other than with my first apartment). Three were for each of my credit cards, and one was when my husband and I applied for a mortgage. Each time, my credit score would go down anywhere from 5-9 points. Eventually it all evens out, but if you are consistently applying for new lines of credit, you may wreck your score instead of build it.
I Don’t Have Any Collections
If you have had a loan go to a collections agency, it may take a lot of hard work and dedication on your part to get it off of your report. Even something as trivial as a late payment can negatively impact your score, so a collections account is a huge no-no. There are many ways to get a collections account of your score, but it will take a bit of research for you to decide which route is best for you.
I haven’t had to worry about student loans, medical bills, or any personal or car loans going into default, so my score is almost spotless. This has led me to be able to raise my good credit score to great, instead of mending a bad credit score.
Overall, I have been very lucky to have learned about the importance of money, budgeting, and saving diligently. My credit score is higher than most people my age, and I contribute that to the fact that I’ve learned about money for as long as I remember.
If you are looking to repair your credit score, or build it up from scratch, you may need to take different steps to achieve my score of 750. The great thing about building up your score is that there are so many different ways to do it, all you have to do is be focused and diligent!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.