Help! My Credit Score Is Too Low


Whenever I teach financial education classes or man a booth at a financial readiness event, I always get lots of questions about credit scores.

What I have discovered is that while most people know the importance of a good credit score and how it can affect loan rates, insurance rates, security clearances and a host of other things, they are confused about their credit and they aren’t sure what makes their score better and what can makes it worse.

Here are 5 steps to help you improve your credit score.

5 Steps to Help You Improve Your Credit Score

Make Sure You Check Your Credit Report

A Federal Trade Commission study reported that 1 in 4 consumers has an error on their credit report that might affect their credit scores. Consumers are entitled to a free credit report from each of the 3 reporting credit bureaus: Experian, TransUnion and Equifax. So you could theoretically check your report each quarter by going to (the only true free source for credit reports) and selecting each bureau in turn. If you find an error, you should dispute it. The free credit report does not include a credit score, but you can usually pay under $20 to get it.

And many times family readiness centers have a code that will allow you to obtain a score for free.

I have seen a recent upswing in service members paying a monthly fee for “credit monitoring” services. Most of the time, this is something you can do yourself by using the free credit reports. And several credit card companies (USAA and Discover among them) are now including free credit scores for their customers.

Pay Your Bills on Time

Remember this: 35% of your FICO credit score is based on payment history, so it’s very important to pay bills on time. Late and missed payments will stay on your credit history for 7 *years* (bankruptcies for 10 years). But even if you’ve had a missed payment or two in the past, it’s always worth it to try and make a fresh start.

According to FICO (the main credit scoring company), older payment boo-boos count for less, especially if you have good recent payment patterns. If you find that you are having a hard time keeping your payments organized so that you are paying bills in a timely manner, then make sure you set up bill pay reminders for yourself.

Don’t Close Your Credit Card Once You Pay Off a Balance

Some people think that once they have paid off a large balance the best thing to do is to close that account. In actuality, when you close an account you are reducing your overall available credit.

For example, let’s say you have 3 credit cards and each has a spending limit of $3,000. Your overall available credit is thus $9,000. You pay off the balance you’ve been carrying on one of the cards and decide to close that account while you work on the rest of your debt, which is $2,000. Now your available credit is only $6,000. You went from having debt make up just over 22% of your available credit to over 33%.

Lenders typically don’t like to see consumers carrying debt that makes up more than 30% of their available credit balance.

Another consideration is length of credit. When you close a card, not only do you reduce the overall credit available to you, if you close your oldest card, you are also effectively shortening your credit history (worth about 15% of your credit score).

I tell clients that if they absolutely cannot trust themselves with a credit card, then to freeze it in a block of ice, put it in a safety deposit box or even cut it up, but don’t close it unless absolutely necessary.

And with older cards, you may need to occasionally use them or you will risk having the credit card issuer close the account.

Don’t Carry a Huge Balance on Any One Card

Lenders also look at credit usage. They don’t like to see any single card’s credit limit being used to the max. This may be difficult if you are a responsible credit card user who charges everything and then pays them off by the end of the billing cycle. Maybe you, like me, enjoy getting credit card rewards and bonus points.

There’s nothing wrong with this, but if you know that you will soon be applying for credit, you may want to make sure that you are keeping low balances on your card, even if it means making intermediate payments to your credit card issuer before the statement due date.

Don’t Open New Cards

Anytime you go to the mall and get suckered into opening a new credit card for the 10% discount and nifty shopping bag, you’re taking what the industry calls a “hard hit” on your credit score. That’s because when you apply for new credit you are allowing the lender to make an inquiry on your credit past to see whether you are trustworthy.

New credit inquiries make up 10% of your credit score.

This doesn’t mean that you should never get any new credit cards, but it does mean that if you are planning on applying for a car loan or a mortgage soon, you should really avoid opening a new card.

It’s worth noting that checking your own credit report or score should *never* count as a hard inquiry and should not negatively impact your score.

With a little bit of effort, you can make sure that your credit score stays healthy. Hard work and good credit habits are really the only way to improve your score. Unfortunately, despite what some ads might say, there are no instant fixes.

What steps have you taken to improve your credit score? 



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