8 Ways to Improve Your Credit Score

The BIG Ideas:

• Having a strong credit score can help you qualify for a private student loan, get the best rate possible, and save money.

• Credit scores are calculated based on your history of making payments, the number of available credit lines used, and the average age of the credit accounts you have.

• You can get a free copy of your credit report from each of the credit bureaus once every 12 months at AnnualCreditReport.com.

What’s the score?

We’re not talking about the score of your favorite sporting event, but one that’s even more important: your credit score.

Okay, that score may be less interesting. But if you’re thinking about getting a private student loan to pay for college, it can have a huge impact not just on the rate you receive and the payments you’ll have to make, but whether you even qualify to get that loan.

Got it? Now let’s talk about what a credit score actually is, how it’s determined, and more importantly, what you can do to boost your score.

What is a credit score and how is it calculated?

Understanding credit scores can be confusing, but let’s break it down. A credit score is calculated using a formula and is essentially a way of helping lenders determine how likely you are to pay back your student loan on time.

Lenders use a wide variety of credit score models, such as the FICO or VantageScore models, and there are different versions of each. In addition to that, there are three different credit bureaus –TransUnion, Experian, and Equifax – that may report your score slightly differently.

Confused? Don’t worry! The major factors used to calculate your credit score are similar across all models. These factors include:

• your history of making payments
• your credit utilization (a fancy way of saying the amount of credit available to you that you’re using)
• the average age of the outstanding credit accounts you have.

Now that you know how credit scores are calculated, let’s look at 8 different ways you can boost yours and put yourself in a better position to get the student loan you need.

1. Make on-time payments

Payment history is the largest factor in your credit score. If you’ve missed a payment in the past, it can stay on your credit score for up to seven years. Yikes! While it’s difficult to erase past late payments from your credit history, the best way to start building a new history is to start making on-time payments today!

Creating a budget and setting up automated payments with your creditors can help you avoid missing payments. And the lower your score is, the more positive impact a record of on-time payments can help.

2. Pay down balances on revolving debt

Credit utilization also makes up a large component of your credit score. This means that even if you’re making on-time payments, using a large percentage of your credit limit will negatively impact your score. Try keeping your balances on credit card accounts below 30% of their credit limits at all times, or if you can, pay off the debt each month consistently. If you have extra money for paying more than the required monthly payment amounts, use it to pay down high rate revolving debt (like credit cards) before installment loans (such as personal or auto loans or your mortgage), since it will have a bigger impact on boosting your credit score.

3. Pay down balances on installment loans

Speaking of installment loans – the amount you owe on those loans can impact your credit score. As the balance of these loans decreases, your score can improve.

Keep in mind that your credit score may drop temporarily once these types of loans are paid in full. So, if you’re considering applying for credit in the near future, it may be best to wait until after you’ve been approved before prematurely paying off other installment loans.

4. Keep older accounts open

Did you know that the average age of your credit accounts matters, too? Even if you don’t use your credit card, it’s normally best to leave the account open unless there are annual fees to maintain the account. Closing the account can lower the average age of your active credit accounts and temporarily lower your score.

If the account is in good standing, it may take some time before the lender will automatically close the account for lack of usage. Using the card for small purchases from time to time and then paying off the balance can keep those valuable accounts open, helping boost your score.

If you plan on closing an older account that’s in good standing and are considering applying for credit soon, wait until after you’ve applied for the new credit before closing other accounts.

5. Only use credit when you need it

Each time you apply for credit, a hard inquiry on your credit report is done, which negatively impacts your score. So, if you apply for multiple lines of credit, those multiple hard credit inquiries can stay on your credit report for up to two years. The good news is, the impact of hard inquiries is certainly less than it would be for missing a payment, and the negative impact fades with time.

6. Shop for loans quickly

Shopping for the lowest interest rate for a major purchase? Try to do it in a short time frame to reduce the impact on your credit score. Multiple hard credit inquiries within a short time frame (15-45 days) impact your score less severely. Soft credit inquiries, used by many lenders to prequalify you for a loan, do not affect your credit report or credit score, so use those where available when shopping for the best rate.

7. Get a copy of your credit report

Sometimes, errors happen. One of the easiest ways to improve your score is to remove any of them that could be on your credit report and negatively impact your score. Accounts belonging to other people, incorrect accounts as a result of identity theft, and errors in addresses and phone numbers are the most common. But occasionally, accounts can be incorrectly reported as closed or delinquent or may even have the wrong balance. Cleaning up your credit report, if necessary, can improve your credit score.

You won’t know about errors unless you periodically check your credit report. How do you go about doing that? Obtain a free copy of your credit once every 12 months from each of the credit bureaus at AnnualCreditReport.com.

If you find an error on your credit report, it’s a good idea to contact both the lender and the credit bureau reporting the incorrect information.

8. Monitor your credit score

Oddly enough, your credit report may not include your credit score. Fortunately, credit card lenders and banks make at least one version of your credit score available to you. Check to see if your banks or lenders offer a monthly score. If not, free services like Credit Karma or NerdWallet can give you your credit score based on one of the credit models. They can even provide specific advice based on your credit report.

When you keep track of your credit score, over time, you’ll learn how your payment history and credit usage habits impact your specific credit situation. Even if these scores are not the same models lenders use, you can use them to track your progress over time to see the impact of your credit decisions and your great payment history.

Ready to get the extra credit you need for school?

We’re here for you. For more than 40 years, Brazos Higher Education has been helping make education possible. As a Texas non-profit, we can offer you BIG savings on a wide range of private loans for students and parents. Contact us today.