Here Are the 2 Most Powerful Ways to Increase Your Credit Score

by Matt Frankel, CFP | July 21, 2019

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man holding a tablet with a screen that shows a credit score of 811

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There are many ways you could potentially increase your credit score. If you run a Google search for "ways to increase your credit score," there are plenty of possible tricks and tips you might find. Some are rather obvious, such as checking your credit report for errors or not applying for new credit any more often than you need to.

Others are more outside-the-box. As one example, did you know that asking your credit card companies to increase your credit limits can have a positive impact on your score? Or, did you know that by keeping your older and unused credit card accounts open, they can be a major positive influence over time?

No credit improvement tactic is more powerful than these two

There are plenty of perfectly valid credit-improvement tactics out there, including those I just mentioned, but none are more effective than simply paying down a portion of your debt every month and continuing to pay your bills on time, month after month, for a long period of time.

These may sound like obvious positive factors, but there's a good reason these are far more powerful than everything else you can do. Simply put, these help in two extremely important parts of the FICO credit scoring formula.

First off, the "amounts you owe" is the second most important factor in your FICO® Score, making up 30% of the information used in the formula. So by decreasing your debts, it's going to have a big effect. This is especially true when it comes to revolving debts like credit cards, as maintaining low balances on these is generally a more powerful catalyst than paying down your installment loans.

Second, your payment history and the length of your credit history combine for half of your FICO® Score's determining information -- payment history is the single most important category, contributing 35%, and the "length of credit history" category, which considers several time-related factors, contributes another 15%. So by simply paying your bills on time and allowing your credit profile and accounts to age, your credit score can naturally improve over long periods, especially if your debt is declining along the way.

I'll illustrate this with an example using my own credit score. I subscribe to the myFICO® credit monitoring service, which, among many other features, offers a simulator tool to show what effects certain actions could have on your credit score. While the simulator is admittedly just an approximation, it's designed by the same company that makes the actual FICO® Score, so it tends to be fairly accurate.

My credit is well into the "very good" range, in the mid- to upper-700s, depending on which of the three major credit bureaus I'm looking at. And every single time I've used the simulator tool's "best action" feature, the answer is always a combination of paying down revolving debts (credit cards and other credit lines) over a period of 24 months, the longest timeframe the simulator can look at. In fact, if I spread my debt repayment over the next 24 months and pay my revolving accounts to zero, the simulator tells me that I should have a near-perfect FICO® Score of 842.

The key takeaway

The bottom line is that the number-one foolproof way to increase your credit score is to pay your bills on time every month over a long period of time. While you can build good credit in a relatively short time, building excellent credit takes a while. There's no shortcut. So while you might find a lot of credit improvement tips, and services that will help you increase your score for a fee, there's really no substitute for the tried-and-true method of paying your bills on time every month and keeping your debts low.

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