As a money coach, who has struggled with personal finances over the years, I feel like it’s my job to help as many people that I can. Because the struggle is real. Let’s be honest, life is hard enough as it is and a simple thing like raising your credit score can really help when life throws you a curve ball.
You’re ready for some serious change this year, and honestly, who isn’t?! This year has been a struggle for so many of us and it’s time to make changes! Want to learn how to raise your credit score in 2021? Let’s get started!
Where to find your credit score
Not sure where you find your credit score? Start by creating an account with Credit Karma! It’s super fast and easy to get your score and the best part? It’s FREE! Credit Karma gives you two free credit reports; Transunion and Equifax. They’re a great snapshot of your current score! Credit Karma also includes an outline of what debt you have, what you can do to improve your credit and so many other important factors! Please note – they will advertise credit cards, just swipe past all of that nonsense!
The bread and butter credit score report however is your FICO. This is the report that creditors check when you apply for credit. It measures how long you’ve had credit, how much debt you currently owe, how much of your available credit is being used and if you’ve paid on time. Many of your banks and creditors, like Capital One and Discover, offer updated FICO scores to you for free (probably because they’re so grateful you’re paying them money).
How do you raise your credit score?
Pay off your debt
The number one thing you can do to raise your credit score in 2021 is to pay off your debt. I know, easier said than done, but it will give you the greatest impact on your score immediately! Ideally, you want to keep your credit utilization under 29%. So what does that mean? Divide your total amount owed by your total credit limit. I’ll show you below!
Let’s say you have $10,000 in credit card debt, but your credit limit is $30,000. Divide $10,000/$30,000 = 0.3333. This means you’re utilizing 33.33% of your credit limit. If you lowered the balance on that credit card by $2,000, your total amount owed would be $8,000, leaving you with 26.67% credit utilization. This can impact your score drastically! The more debt you pay off, the higher your scores raises!
Keep your accounts open
Let’s say you’ve paid off all of those credit cards and you’re paying cash for everything. Wonderful! Now let’s keep those accounts open! Keeping your accounts open helps your credit age. The longer you have an account open, the better your credit age becomes! Credit age works with a “median system”. It will take the age of your oldest credit account and the age of the newest credit account and find the median. That will be your credit age number. Therefore, if you’re applying for new credit, it will lower your credit age. Try keeping all of your accounts open, especially the oldest ones! They will help strengthen your credit score even if you don’t use them!
What you should avoid
Never miss or make a late payment
The most important thing you can do to raise your credit score in 2021 is to never miss or make a late payment. I cannot stress this enough! Making even one late payment will knock your payment history down to a 99%, and worst of all, that never goes away. The worst thing you can do for your credit is to miss a payment because it has the highest impact on your score and does the most damage. The best way to avoid this happening is to put all of your bills on auto-pay. Even if you’re paying just the minimum, at least you know you’re covered and won’t have that nasty hit on your credit score!
Open new accounts
As I mentioned before, there are simply some big purchases we can’t pay outright for like a house. This is why it’s the trickiest of them all. Sometimes in order to raise our credit, we have to go backwards. In some circumstances, applying for a new credit card can help raise your credit. I know, it’s strange! If you’re planning on making a large purchase like a house, avoid opening new accounts. Banks and creditors raise a red flag when they see you bought a brand new car and two months later are trying to buy a house. Be strategic with your large purchases and you’ll do just fine!