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Credit scores, which can range from 300-850, are calculated by scoring models using data from your credit report, including your payment history and amounts owed. Although there are various credit-scoring models, FICO is the credit-scoring model created by the Fair Isaac Corporation and is considered the industry standard for determining an individual’s credit risk.
Here’s a breakdown of how credit score ranges are rated, according to FICO:
- Less than 580: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800+: Exceptional
If you have a credit score that’s considered poor or fair and want to raise it 200 points in less than five years, it’s doable. However, you have your work cut out for you.
“Raising your credit score 200 points, no matter the timeline, will require you to be vigilant and disciplined,” said Christopher M. Naghibi, Esq., executive vice president and CEO at First Foundation Bank.
With that in mind, here are seven ways to raise your credit score 200 points in less than five years.
Learn How Credit Works and How To Use It
Naghibi said that you won’t be able to improve your credit score if you don’t know how to use your credit in the right way. He said the first thing you need to do is learn how credit works. He said there are a lot of YouTube videos and articles online — that you can access for free — that provide great tips on how to properly utilize your credit and make it work for you.
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Always Pay Your Bills On Time
Payment history is worth 35% of your credit score, according to FICO. Naghibi said the biggest lesson you should learn is to pay your existing bills on time.
“I am a big believer in autopay directly from your account for at least the minimum payment due,” he said. “Then make a separate payment for more if you are working to pay down debt. Set up reminders or automatic payments for all your bills, including credit cards, loans, and utilities. Even one late payment can negatively impact your credit score.”
Pay Down Credit Card Debt
The amounts you owe are worth 30% of your FICO credit score. After you’ve set up recurring payments or reminders to pay, Naghibi said to turn your attention to paying down existing credit card debt.
“Aim to keep your credit utilization ratio — the amount of credit you’re using compared to your credit limit — below 30%,” said Naghibi. “Pay down balances, and avoid charging more than you can pay off each month. The goal we should all have is to use your credit card each month for charges and paying it off in full each month.”
Avoid Closing Credit Cards Because It Will Lower Available Credit
Lowering your available credit can increase your credit utilization, which, again, is worth 30% of your credit score. So, once you’ve paid off the balance on a credit card, don’t close it, advised Naghibi.
He said this is good advice even if you don’t use the card very often. “You don’t want to lower your available credit while you are attempting to increase your credit score,” he said. However, some instances where he said it might be worth it to close an account is if the credit card has an annual fee or a small available limit.
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Avoid Closing Credit Cards Because It Can Reduce the Average Age of Your Credit
“The age of your credit history also matters,” Naghibi said. “So keeping older accounts open can help prop up your score. As counterintuitive as it may be, closing a credit account will incrementally impact your credit score.”
The length of your credit history, according to FICO, is worth 15% of your score.
Avoid Opening Additional Credit Lines Unless It’s Necessary
Opening several new credit lines within a short period can negatively impact your credit score because it can make you seem like a greater risk — especially if you have a relatively short credit history. New credit is worth 10% of your score.
“Do not open more credit lines unless you absolutely have to,” said Naghibi. “And limit credit checks as well. Each application can result in a hard inquiry, which can slightly lower your score. Be selective about applying for new credit.”
Aim To Handle Different Types of Credit
Naghibi shared that managing different types of credit also impacts your score — in a good way. He said having an auto loan or mortgage and handling it responsibly is important because it shows that you can be successful at paying off large balances over time.
“If you only have credit cards,” he said, “you may want to consider adding a different type of credit, like a small, manageable auto loan. It will drop your score in the near term because you will have a credit check, new credit and additional debt, but after paying it down over the course of five years on time, you will actually be building stronger credit. Auto loans and mortgage loans act as a bit of an anchor and can help lessen the impacts of credit card debt on your overall score.”
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Your credit mix is worth 10% of your score.
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