Raising Credit Scores

Today, as my groceries were being bagged at Trader Joe's, the checkout clerk asked what my plans were for the night. "A little reading, I think, after I cook my awesome dinner of course." "Oh? What are you reading?" "Well, I'm reading a book about entrepreneurship and another one about personal finance." "Are you an accountant?" "No, just a nerd. I'm also consulting actors and teaching them about personal finance." "Wow! Great idea!" She was intrigued. Her biggest question had to do with credit scores. "Can you raise a credit score?" "You bet!"

She wanted to know HOW does one raise their credit score. In the one minute I had left to explain it to her I gave her the most basic and important elements. "Don't borrow more than 30% of your available credit. Which means, if you have a credit card with a $1,000 line of credit, don't ever charge more than $300 dollars on it." And if you do have a balance on your card or possess any other kind of loan (car, mortgage, student) NEVER miss a payment." She thought it all sounded pretty easy. And she was right. It really is easy if you are diligent and stick to your financial plan.

A big part of your plan HAS to be making sure you never miss payments on any of your loans or credit cards or bills. If you always make payments on time, your score will do nothing but go higher. Of course, you have to obey the 30% rule on your lines of credit. Student loans are a different story. You borrow the full amount and you're still ok. Just make sure that when you're in "repayment status" that you always make your payments on time. Do you see a trend here? I'm not a fan of beating dead horses, but that's just how important it is to never miss payments.

Also, if you have several credit cards, it's not a terrible thing. Let's say you have a TOTAL of $30,000 worth of credit lines between four credit cards. If you never borrow more than $9,000 on those cards, you're credit score will remain high. HOWEVER!!! If you have one card that's WAY over the 30% rule, you could hurt your score until that card is back in the 30% range.

For a great article about credit score myths, click here.


As you can see, your income does NOT affect your credit score at all.

And one thing not mentioned in the article is that the longer you have a card, the more it helps your score.

Let's say you have four credit cards. You got your first one 8 years ago, your second card 5 years ago, your third 3 years ago, and your fourth 2 years ago. So, you have four cards and total of 18 years. That's an average of 4.5 years of credit. If you never use the first card that you got 8 years ago and decide to cancel it, your length of current credit (or credit history) goes down to an average of 3.3 years... thus reducing your "credit history" or length of time you've had your accounts. The lower the number for your credit history, the lower your score. So? Keep that old card open even if you don't use it. And better yet. Use it. Once in a while make a charge on it. Every couple of months buy your groceries with it and pay it off right away... just to keep it active and to keep the line of credit where it's at. If you NEVER use a card, the card company can lower your line of credit without any notice. If that happens, it could take down your OVERALL available credit and raise your debt to credit ratio.