Credit Scores and Ratings
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  1. Credit Scores and Ratings
  2. 7 Steps for How to Build Credit & Improve & Increase Your Credit Score

7 Steps for How to Build Credit & Improve & Increase Your Credit Score

Many people wonder how to build credit or how to significantly improve or increase their credit score. The truth is that you don’t have to be a financial wiz or a perfect person in order to do this. Plenty of the most ordinary people you could ever meet have amazing credit scores. The big secret to their success becomes apparent as you read the steps and tips below: learning to live within your means.

One of the great ironies with credit scores is that people who don’t have good credit are the ones who wish they had it while those who have amazing credit scores usually don’t care because they don’t want to borrow any money. Part of the reason for this is that people with the very best credit scores have usually learned to work with what they have. If they don’t have enough money to buy something they want, then they don’t use credit to buy it. Instead, they save up first, and then they buy—but only when they have the money. If they do use credit, they will only use a small amount that they know they can quickly repay.

Steps you can take to build an excellent credit score or improve yours

If you currently have either a low credit score or you’re looking to improve yours, you can eventually raise your lower credit score and turn it into an excellent one by following the tips and suggestions outlined below. Following clear-cut steps like this is of course easier said then done, but if you stick with it, you’ll start to form some great habits that will reward you in the years to come.

Here’s how to build credit and improve and increase your credit score over time:

A figurative image of someone's hand turning a credit score dial from poor to excellent to increase and improve their credit score.
  1. Make sure to always pay your bills and debt payments on time every month and never be late. Computers track everything, and they will remember and report every late bill payment on your credit report for 6 years. So don’t give them even one late payment to remember if you can help it.
  2. Make sure to have at least two credit cards reporting on your credit bureau. A line of credit will also help but is not necessary.
  3. Have reasonable credit limits available to you on your credit cards and line of credit, but don’t use them (or hardly use them). Part of your credit score is determined by adding up all your credit limits and then subtracting how much you owe. If this calculation results in you having a lot of credit available to you which you are not using, then this will boost your credit score.
  4. Don’t apply for credit too often.
  5. Do all of the above over many years and your credit score will be amazing (the only catch is if you have late payments or other negative information reporting on your credit bureau right now, this bad information will need to fall off your credit bureau before your credit rating can soar. It can take 6 to 7 years from the date bad credit occurred for the negative information to fall off your credit bureau).
  6. Learn to live within your means without using credit. If someone were to take away all of your credit cards and your line of credit tomorrow, how would that effect you? Would your life continue on just fine or would that really mess you up? You will never have an awesome credit score as long as you depend on credit. You have to break your dependency and learn to live on a cash budget. Once you learn to live on cash, and start making progress paying down your debts, your credit score will continually improve.
  7. Make living on a cash budget a life style choice. As the years pass and you pay your bills and debts on time and don’t charge much on your credit cards, you will feel better knowing that your finances are under control.

Bonus Tips

  • If you are currently carrying any balances on your credit cards, paying them down or off entirely is yet another way of how to improve or increase your credit score. The reason for this if you’re using over 75% of any credit limit, this will significantly reduce your score. To eliminate all negative effects, you’ll need to pay your balances down to below 30% of their limits.
  • To help you on your journey of building and increasing your credit score, it may be helpful to create a way of holding yourself accountable to your goals or your new approach to dealing with your finances. You can do this by sharing what you’re trying to accomplish with your spouse, significant other, a friend, or family member. If your goal, for example, is to now live within your means and not use any credit you can’t afford to pay off each month when the bill arrives, then you could share this with them, and then in the future as you have conversations with them they might ask how you’re doing with following your plan. This could then create a bit of accountability for you if you think this would be helpful.

Extra Bonus Tip to Raise Your Credit Score by 100 Points Overnight

When you obtain a copy of your credit report and if you have some collection items at the bottom of your report such as unpaid parking tickets, unpaid phone bills, an unpaid electric bill, or any other kind of collection item, if you can pay off all collection items and make sure that each one is removed from your credit report when its paid (which is what normally happens but it’s good to make sure), then it’s possible that this could raise your credit score 100 points overnight. Well, 100 is a rough guess. We can’t tell you the exact amount this will help. It varies, but its normal to see this result in a massive increase to someone’s credit score.

How to Get Your Credit Score

You may have a general idea about what your credit score is, but if you would like to get it – or at least a much more specific idea – then here is how to get your credit score and your credit report. You should be warned, though, that the company that generates your credit score will not give it to you. Banks pay for this score, plus every bank and credit union generates their own proprietery score. So there are actually dozens of credit scores out there. When you pay for your credit score from one of the credit bureaus, Equifax or TranUnion, they are not allowed to give it to you. So what they sell you is an estimate of your credit score using a different algorithm – which is significantly off 20% to 25% of the time. When your bank pulls your credit score, you can ask them to share it with you. They may or may not depending on the bank’s policies at the time. But hopefully you can see through all of this that your score is just an estimate and can vary depending on who is generating it.

What To Do If You Have Bad Credit

If your credit is currently in rough shape, here are two articles on our educational site that go into a lot more detail on how to fix your credit score and how to repair and restore credit (yes, the articles are similar and overlap somewhat, but both contain great information that credit repair companies like to charge thousands of dollars for).

The Bottom Line for How to Build Credit & Improve & Increase Your Credit Score

When it comes to figuring out how to build credit, how to rebuild credit, and improve and increase your credit score, the steps we’ve listed here are bullet-proof. This is the sure-fire way to build strong credit and increase it into the best credit score range possible. As you can probably see from all our tips and suggestions, after you’ve put a few technical things in place, the best thing you can do to build great credit is to learn to live within your means and not spend more money than you earn. In our world, this is more easily said than done, but with careful planning and determination it can be done.

Worried about your credit?

Get answers from an expert

Whether it’s about keeping, building, checking your FICO credit score, or rebuilding your credit, we can help if you’re feeling overwhelmed or have questions. One of our professional credit counsellors would be happy to review your financial situation with you and help you find the right solution to overcome your financial challenges. Speaking with our certified counsellors is always free, confidential and without obligation.

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