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My parents will be the first to tell you I have never been that great with money management.
Keeping more than $50 in savings was always a struggle for me. When I was a teenager all of my extra money magically disappeared. AKA I threw most of it away on body jewelry, overpriced band t-shirts, shoes, and tattoos/piercings once I turned 18 because #yolo (is that still a thing or am I showing my age?). I had zero clue what a credit score even was back then.
After I reached my 20s all of my income went toward bills because living on your own is expensive when you work minimum wage jobs.
By the time I was 22, I had racked up tens of thousands of dollars in student loan debt. Currently it sits at just shy of $60k – after making payments totaling over $15k. On top of that, I managed to max out a couple of credit cards. And at 23, I took out a $16,000 loan for a new car. I never bothered to check my credit score up until then. That was September 2016.
When my need for a new car became top priority, I was forced to face my credit score.
Based on my tendency toward “retail therapy” plus my poor budgeting, it was no surprise that my credit was a laughable 598. Yikes, right? It was rough facing the reality of adulthood. Realizing how much my credit score limits my financial options and decisions, it was time to start focusing on the future. How could I change my spending habits and start to build up my savings? What did I need to do to raise my credit score to a respectable number?
By facing my credit issues head on, I was able to increase that 598 to just below 700 within 12 months.
My score sat in the high 600s for about a year. Then by practicing some of these methods again in 2018, I was able to bring my score up to the highest it’s ever been at 732. Since then it has fluctuated based on my credit card usage, but has consistently stayed in the 720s.
I’m sure you’re wondering exactly how I did it. Well don’t worry, I’m going to tell you! But first I have to give a few disclaimers for legal reasons (boring, I know). I want to remind you that everyone’s financial situation is different. What worked for me may not work for you, and vice versa. Overall, I believe these methods that truly helped boost my credit score 100 points in a year’s time should work for you too.
The advice I’m going to give you is my personal opinion. I am not a professional and am not liable for any negative outcome you may experience from following my advice. Please use your best judgment regarding your financial situation, as you may have a different situation than myself.
My advice is most relevant to those who are just starting out with their credit journey. This includes young adults who have little to no credit history, or whose main issue is high credit usage and/or loan debt. If your credit is in rough shape due to lack of payment on accounts, derogatory marks, or other factors from neglect or inability to pay, your best option may be to reach out to a credit counselor. Okay, let’s get to it.
Understanding how your credit report works is critical to improving it.
Let’s do a quick breakdown of what to expect, no matter what credit report program you decide to use. I started out on Credit Karma, but most apps will give you a similar experience to one another. Other credit report apps I use include Credit Wise from Capital One and Intuit by Turbo. I’ll do a comparison post in the future of the different credit report apps so you can decide for yourself which one is best for you.
Your credit score is made up of a few things:
(1) On Time Payments – High Impact – Percentage of payments reported as paid on time
(2) Credit Usage – High Impact – Percentage of credit used out of total available
(3) Total Accounts – Medium Impact – The number of open credit lines in your name
(4) Average Age of Credit – Medium Impact – The average age in months and years of all open accounts
(5) Credit Inquiries – Low Impact – The number of times your credit report has been ran by a loan officer or business to determine whether or not to extend a line of credit
(6) Derogatory Marks – Negative remarks left by collection agencies, government, etc
After looking at my initial report in 2016, I was happy to see 99% of my payments showed up as on time. My credit report also showed I had two accounts in collections that I was unaware of. Being in my early twenties, the age of my credit limit was not very old, which had a negative impact.
Another factor that was negatively impacting my score was inquiries, which popped up from all the times I had to apply for private student loans as well as when I went car shopping. Lastly, the largest hit was of course my percentage of credit used. It was pushing 100%.
I wish I had taken screen shots of where I started on my credit journey, because the credit report apps only show a 12 month history. Unfortunately I can’t give you exact numbers from my 2016 report. However, I will share some details on my current report so you can better understand your own.
Here’s a quick snapshot comparison of then versus now:
2016
Total debt: roughly $55-60k
Credit usage: over 97%
Credit score: 598
2017
Total debt: Over 60k
Credit usage: unknown
Credit score: roughly 680
2018
Total debt: Over $65k
Credit usage: unknown
Credit score: 707
2019
Total debt: $73k
Credit usage: 46%
Credit score: 724
My biggest obstacle was my debt and credit usage.
That was my starting point. It sounds like such a simple solution to pay down debt, but it was one of the most difficult actions to take. Paying off debts is not easy, especially when your income is already limited. But that was what I had to do. So, acting like a financially responsible adult for the first time in my life, I came up with a plan.
Strategy #1: I tracked my spending habits and made a budget.
I noticed most of my excess spending was on restaurants and impulse buys, so that was the first place I made cuts. Less fast food and dine-in, and no more shopping out of boredom. I also shut off my Netflix and internet (temporarily, for about 5 months), and switched my phone plan to a cheaper data package.
With so many unnecessary expenses gone, finding extra money to place in savings and to pay toward debts became easier. My need for my “emergency” credit cards became almost non-existent, and I was able to begin paying them down.
Strategy #2: I put the snowball method into practice.
If you aren’t familiar with the snowball method, it’s essentially paying off the smaller debts owed first, and building up to the largest. Basically once you pay off one debt, you take your usual payment amount from that now-paid debt and apply it to the next debt as well.
It’s a useful method because not only do you build more momentum the further you go, but you can see progress sooner rather than later. My smallest debt was a credit card with a few hundred dollars on it. I continued making my minimum payments on all my debts, but made larger payments on that particular credit card.
Strategy #3: I continued to patiently apply this method for seven months.
Paying off debt is a slow process, and your score doesn’t just change overnight. I had to stick with my plan and practice patience if I wanted it to improve. By continuing the snowball method and being mindful of how I was using my money, I was able to pay off one credit card in a few months.
I saw a 40 point increase to my score by the end of January 2017. Not long after that, my second credit card was paid off. And by May, I had enough money saved up to pay off my remaining $2000* in debts (*student loans and car loan not included). Between January and May, I saw another 40 point increase. By the end of May 2017, my credit score was just below 680.
In the two months following the first initial jump, I saw a gradual increase of 15 more points. I attribute this increase partly to the aging of my credit history, as well as a card limit increase. My score was creeping up on 700 – something I didn’t think possible so quickly.
Strategy #4: I reached out to collections agencies about open balances and asked to have the balances removed from my credit report.
One of my two accounts had gone to collections because they had an outdated address on file and the notice never got to me in the mail. When I called the company about this and explained the situation, they allowed me to pay only half the original balance.
I moved around and changed phone numbers a lot in my late teens and early twenties. Since it was hard to keep up with me and I never got notice about the collections, they were very willing to work with me on this and removed it from my credit report.
My second collections account was a $900 ER visit that I had refused to pay and decided to ignore for three years. In my defense, I waited in the ER for over FOUR HOURS just to have a doctor look at me for less than 30 seconds, tell me I was fine and send me home. I missed work, wasted four hours of my life, and was treated with zero respect.
If you can’t tell, I’m still a little bitter about it. But since I didn’t fight the bill with the hospital then, it wasn’t worth the energy three years later. I settled the bill at 70% of the original amount, they agreed to remove it from my credit report, and I moved on.
Strategy #5: I requested credit line increases on all of my credit cards.
Even though my usage was high, I was paying my bills on time every month. Some months I was even making extra payments. After having one card for about 6-8 months, I requested a line increase and got it! This lowered my credit usage, as it freed up more credit availability.
Something I try to remember to do is request a line increase once every 6-8 months. If you’re being responsible about your usage and paying on time, the company should have no issue granting you a higher line of credit. Do avoid opening new credit lines though; this can hurt your score if you aren’t careful!
Strategy #6: I transferred balances that had a higher interest rate to ones with lower interest rates.
Two of my best examples of this are student loans and my car loan. During my early years of college, I had taken out private loans from Sallie Mae. Anyone who has done this knows how high those rates can be (I’m talking like over 12% interest). When I re-enrolled in school in 2017, I received enough grant money and financial aid to pay for most of my costs. But since my interest rates for federal loans were significantly lower and would result in paying less long term, I took extra money out on those loans and used it to pay some of my Sallie Mae loans.
As for my car loan, I decided to refinance and extend the terms back out in 2018. This resulted in cutting my interest rate in half while also reducing my monthly payments by over 40%. I had an extra $130 each month from this refi, and use it to build up my savings and pay down other debts.
Try it out and let me know how it goes!
