Improve Your Credit Score in 4 Easy Steps

A credit score is a number that takes your financial history into consideration for financial institutions to determine your creditworthiness. Whether your financial goal is to purchase a home, buy a new car or get a new credit card, your credit score plays an important role in making that possible. Improving your credit can have many benefits such as: increased credit or loan limits, lower interest rates and pre-approved loans. Your credit score is also very important when it comes to simple things like getting a cell phone plan, the insurance premium you pay and even landing a new job. Now is the right time to begin to improve your credit score and we have four tips to help you get started and stay on track.

1. Review Your Credit Report

Before taking steps to improve your credit, download your full credit report from This will give you an accurate picture of all reporting and allow you to review for any errors you may need to dispute. Your credit report will not show your score, but will show your credit and retail cards, personal loans, public records, collection items and any inquiries that have been made. Data is reported monthly and will determine your score. Once you’ve reviewed your report and do not see any disputes, the next step is to check your score.

2. Evaluate Your Credit Score

FICO® Scores range from 300-850, with an average score between 650-750, depending on the credit reporting agency. Your credit score may affect approvals, rates and terms of new credit applications. If your credit score is below that average range, do not worry, you can improve it. A key thing to remember is that 35% of your credit score is based on your credit payment history. Make sure to set up automatic payments and always aim to pay off card balances in full if possible. The second important area to focus on is your amount owed. This is where your debt-to-income ratio comes into effect. This is calculated by dividing your total monthly debt payments by your monthly gross income.

The length of your credit history is also important as this is used to evaluate how long you’ve had credit and been a responsible borrower. Once you determine these key components, your next step is your payment plan of action.

3. Payment Plan of Action

Time to tackle your debt. There are many different approaches to decreasing debt, but the most important thing to keep in mind is getting started. Find a method that works best for you and your current financial situation. Start with paying off any past due payments and setting up automatic payment services to ensure a payment is never missed in the future. Next, evaluate your budget to confirm if you are able to increase the amount you are paying towards your current balances. Two of the most popular methods of debt repayment are the avalanche method and snowball method which are both effective for eliminating debt.

  • The avalanche method is used by paying off your credit cards with the highest interest rate or APR first since they are charging the most interest. This can help you reduce high interest charges faster.

  • ​The second method is the snowball method where you pay off the smallest balance owed first, regardless of the interest rate. You then move to the next lowest balance, adding your payment amount from the first debt, which you’ve now paid off, to the minimum payment of the next debt. This creates the snowball and you keep doing this until you reach the largest balance owed.  

No matter what method you choose, both are highly effective in reducing your debt and keeping you motivated towards tackling your goal of repayment. These repayment method options are dependent on your own personal financial situation so make sure to evaluate closely. It’s also important to incorporate smart spending habits and only use your credit card if necessary, especially during this step of paying off your current debt balances. Using your credit card is not a bad thing, it can actually increase your score as long as you are also actively paying down your monthly balances.

4. Credit Questions to Consider

Once the 3 steps above are completed, ask yourself the following questions and keep in mind that it is important to track your score monthly to view your credit progress and to help keep you motivated.

  • Do I need this new credit card?
     If it is not necessary, do not apply. Keep in mind that every time you apply for an additional line of credit, whether it be a loan or a card, the lender will run a request for your credit report, known as a hard inquiry. Hard inquiries can cause a decrease in your score and if too many inquiries are on your credit, you can be viewed as a credit risk by lenders. Only apply for a new credit line if your current financial situation allows, you are confident you will be approved and have determined it is a real need.

  • Is your credit utilization under 30%?
    To calculate your utilization, add up all of your total available credit limits and current balances. Next divide your total balances by your total available credit limit to calculate your credit utilization percentage.

  • Do I need all the credit cards I currently have open?
    Remember credit history is key so be careful when closing credit cards. Even if the balance is zero, you want to appraise how long you have had the card and may want to consider keeping it open as it can be considered an aged account and positively impact your credit score. Although if the credit card is paid off, you do not use or need it and have only had it for a short period of time, it may be a good idea to close the card. Everyone’s credit situation is different so carefully determine what options are best for you.

These tips should help you get started on improving your credit. Make sure to check your credit report at least once a year and check your credit score monthly to make sure you’re making progress. Select a payment method that works best for you to ensure you pay your bills on time, lower your credit utilization and create smart spending habits to help improve your credit.

SDCCU members with an active loan in good standing can view their FICO Score in Internet Branch online banking.

Visit our Financial Knowledge Blog to learn more tips on setting up a solid financial future or join us for Financial Wellness Wednesdays.