How to Improve Your Credit Score

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There is no shortage of creative financing options available to investors, but the most popular way to finance a real estate investment is through a traditional mortgage.

Between 2000 and 2008, house prices soared. Banks would grant mortgages, then bundle them together into an investment called a mortgage-backed security and sell it off. Since the mortgages were backed by Fannie Mae and Freddie Mac, they were guaranteed, thus making the entire product very enticing to investors. So enticing that they were soon all snapped up, leaving investors looking for more. Banks complied by lowering their criteria for a mortgage. Remember those NINJA loans? No income, no job applicants.

People “qualified” for loans they couldn’t possibly afford, and eventually the entire house of cards crumbled. Many of those banks crumbled, too. New rules and regulations were put into place so this didn’t happen again, and now it is pretty tough to get a mortgage. Unless you are really qualified. No more NINJAs. So what happens if you aren’t well qualified? How do you improve your credit score?

Related: 4 Ways To Build Your Credit Score Today (Without Spending Any Extra Time)

What is a Credit Score?

One of the first things a bank will look at is your credit score. Your credit score is comprised of five elements:

  1. Payment History
  2. Amounts Owed
  3. Length of Credit History
  4. New Inquiries/New Credit
  5. Types of Credit/Accounts

While there are different weights assigned to the different categories, using complex algorithms and predictive analytics, they are basically assigned in this order:

Payment History is given the most weight at around 35% because if you haven’t made consistent payments in the past, chances are good you won’t make consistent payments in the future either.

Amounts Owed weighs in about 30% of your total score. This category not only takes into account the total amount you owe on various types of credit — a mortgage is weighted differently than a credit card — but also takes into account the amount of debt you have accumulated compared to the amount of credit you have with that particular creditor. Having a $12,000 limit on a credit card, but carrying a $1,000 balance reads much differently than carrying a $11,500 balance on that same card.

Length of Credit History comes in at around 15%. A shorter credit history doesn’t automatically mean a lower score. You can still have a great credit score with a short history, as long as the rest of your report looks good.

New Inquiries/New Credit makes up about 10% of your score. A sudden rash of new credit cards doesn’t look very good on your score; however, several different inquiries for a home or car loan in a short amount of time usually indicates you are shopping around for the best rate.

Type of Credit/Accounts also makes up about 10% of your score. Most people are only going to have one mortgage and one or two car loans, but several credit cards. Having no mortgage and excessive credit cards could indicate lack of planning or financial sense, especially if those credit cards have a high debt-to-limit ratio.

So How Do I Improve My Credit Score?

Let’s take a look at the 5 components again.

Payment History

Payment history makes up approximately 35% of your credit score, so if you make late payments, you are going to see a dramatic dip. I have had late payments myself — sometimes you just forget. But every time you forget, your score takes the hit. And while you can improve your credit score, it takes longer to bring it back up than it does to drop.

Enroll in your creditor’s auto-pay program. Most creditors have an automatic payment program, where you can either set a specific dollar amount to be paid every month (like a mortgage payment that typically stays the same for the year or a credit card that you are paying down), or specify that the entire balance due be paid on the due date (like a credit card where you don’t wish to carry a balance).

Take advantage of online bill pay. Writing a check to pay a bill is so 1990s. You have to find your checkbook, locate those stamps, and remember where you put the envelopes. Or you could simply sign up for online bill pay through your bank and make the clicks.

Pay off the debt. Let’s be frank; if the debt isn’t there to pay, it can’t be paid late.

Amount Owed

The amount you owe also makes up almost 1/3 of your entire score, but again, this is weighted differently for the different types of credit. A mortgage is a long-term, collateralized debt, which means if you don’t pay, they can take it away. A credit card is a less stable debt — the bank can’t come repossess your pizza from last month.

This category considers your debt-to-credit ratio on credit cards, meaning the higher your balance, the lower that debt is scored. Carrying a $1,000 balance on a $12,000 limit is much better than carrying an $11,000 balance on that same card.

Really, the only way to improve your credit score under this category is to pay off the debt. Make it a top priority to get rid of as much debt as you possibly can.

Length of Credit History

The length of your credit history is a far smaller percentage of your total score. It’s nice to have a long credit history, especially a long GOOD credit history, but a good short credit history isn’t so bad. Everyone has to start somewhere.

New Inquiries/New Credit

Length of credit history goes hand in hand with new inquiries — a new credit card or mortgage isn’t going to ding you as much as 9 new credit cards. If you are looking to improve your score, make intelligent choices when shopping for a new credit card. Or better yet, don’t open new cards. There are things you cannot do without a credit card, like rent a car or a room in a reputable hotel. But you only need one card.

Type of Debt/Accounts

Type of debt is also given some weight, but very little. Again, mortgage or car loan debt is collateralized, so it is safer debt than credit card debt.

Get Your Report

Under US law, you are entitled to a free credit report every 365 days. There are numerous companies that can provide you with one for free, but the site I like best is This site was set up by the three major credit reporting companies (Equifax, Experian and TransUnion) to comply with the law.

Related: Should You Fund Your Investments with a Credit Card? Heck No!

It should be noted that this site gives you a copy of your credit report for free and may charge you for a copy of your actual credit score. Those two items seem the same, but the reports contain the information — the score is determined by each individual reporting company and can vary by several points.

But the credit report is what’s really important. Get a copy of your credit report and pour over it, making sure that every single bit of information is up to date.

Are there cards still open that you haven’t used in years? Keep one for length of credit history, and then close the rest. Keep in mind that a closed account will still show up on your report, but closing an unused account will reduce the amount of possible debt you can incur.

Do you have late payment reports that aren’t true? File a dispute with the card issuer to get the information off your report.

Don’t underestimate the importance of having a good credit score. Most people use it to secure a mortgage or car loan, or to open up credit card accounts. Additionally, more and more employers are using it to assess the quality of an applicant, and a better score can be the deciding factor between two similarly qualified candidates. Figure out where you are at, and strive to improve your credit score to above 740, which will help get you the best loan rates.

Have you been successful?

Please share your tips on how to improve your credit score below.

About Author

Mindy Jensen

Mindy Jensen has been buying and selling homes for almost 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real estate agent in Colorado, author of How to Sell Your Home, and the community manager for, where she helps new and experienced investors learn the proper ways to invest in real estate to grow their wealth. Mindy is an alumnus of the School of Hard Knocks and will happily share her experiences with anyone who asks. When you can get her to stop talking about real estate, you can find her on her bike or adventuring in the beautiful mountains of Colorado.


  1. Frank Romine

    I know more poor people with good credit than I do people with money that have bad credit…. What does this mean?


    • Mindy Jensen

      Not having a lot of money doesn’t necessarily translate into not paying your bills, just as having a lot of money doesn’t necessarily translate into paying your bills. The number one thing that helps your credit is making timely payments. You don’t have to pay the whole thing off, but if you make the minimum payment every month on time, you are showing responsibility.

  2. Brian Gibbons

    Mindy, that is a nice article about credit ratings.

    I always tell my REI Students to do 3 things:

    1. See 2 websites: and, read everything.

    2. Get an envelope, start with $1000 goal, put cash in there eveyy week, get the $1000 goal saved, go to the bank OR pay off debt with it.

    3. Do Bank Round Robin, take a $1000, talk to the manager of major bank, tell them you want a secured 12 month loan of $1000, get a payment of $85 a month for 12 months, double up on payments, $170 a month, in 6 months, you will have 3 entries, 1 new installment loan, 2, paid as agreed, 3, paid off. This new reference will boost your FICO as much as 50 points.

    Thanks for the article!


    • Mindy Jensen

      Thanks for this tip, Brian. I whipped out my calculator to figure out how much a secured 12 month loan would cost, and using your figures it comes out to $20. If I had a low credit score, and could bump it up quickly and easily like this, that would be a very well spent $20. For every 20 points higher your credit score is, you get a much better rate. 740 and above gets the best rates.

    • Orlando Paz

      Brian, Great advice!… In my circumstance, the damage has already been done. Unfortunately I have learned about the basics mentioned in this article a little too late. All I can do now, is look for creative solutions (hacks), to help repair the damage. I will definitely look into the book you recommended.

    • Mindy Jensen

      Thank you for the correction, Jon. When you are applying for a mortgage, which uses the FICO score, they look at the debt-to-income ratio. I have removed the incorrect paragraph.

  3. Scott Stevens on

    I am 26 and have an 813 credit score. When I was 18, I got a credit card and now have several cards, three mortgages, and a car loan, all with 100% on-time payments, cards paid in full. I ask for a credit limit increase on my cards about every 6 months to a year. It’s not difficult, the score steadily goes up each month.

    I’m enjoying getting any credit card I want, usually with the lucrative signup bonuses after spending only like 1k in the first three months. Credit cards can be awesome when used right or detrimental for those who can’t payoff what they charged. To each their own.

    • Mindy Jensen

      Scott, you are absolutely right. They can be so helpful when used right. I got my first card when I was 18, as well. I didn’t get much education about credit cards, but my parents told me if I couldn’t pay it off every month, they would take it away from me. And to not charge more than I could pay off, except for emergencies like new tires.
      I have a friend who writes a travel hacking web site, and I, too am enjoying lucrative signup bonuses. Next week we are taking the train to California for free, staying in hotels for free, and flying home for free. That’s my favorite price!
      And 813? Wow! Impressive!

  4. Terrence Arth

    Hi Mindy, as you know good credit is extremely important throughout life. Why schools don’t teach courses in “life skills” is beyond me. Anyway, I have 2 daughters that went to college. So I figured a little credit planning would help them start out their lives on a positive note. After they completed their freshman year living in a dorm, we hunted for a new condo for each of them. When they decided on the 3 bedroom unit they liked (that I liked too) I bought it for them with a minimum down and put each of them on the mortgage as a co-signer. In addition, I got them a credit card with a $500 limit in there name that I paid for, monitored and controlled. They were responsible for the condition and keeping the unit rented and managing the balance on the credit card. Between sororities, clubs and friends (and being a new unit) each had a full load and several friends waiting in line. During their senior year several of their friends had their parents call me to buy the unit after my daughters graduation, as luck would have it, at a nicely appreciated price. Both kids graduated with a degree, exceptional credit and several thousand dollars in an account–the profit from each condo after all expenses, upkeep and repairs/improvements plus appreciation. To this day, at odd times one or the other will thank me for the help in establishing and managing their credit in the beginning because they had so many friends during those impulsive years that screwed up their credit so badly it took years to straighten it out and to relearn good credit habits.

    • Mindy Jensen

      Thanks for reading, Terrence.
      I am trying to teach my girls about money as well. They are 8 and 5, so I have a bit of time.
      That was extremely generous of you to give them all the extra money from the condo. And what an amazing lesson to teach them.
      I know so many who have such poor credit due to lack of understanding how real life works, and bad decisions.
      This is truly one of the greatest gifts you could give a child.

  5. Assaf Furman

    Thanks for the article Mindy.

    I’ve heard the best way to show you’re a low risk consumer is to charge the card up to 30% of its maximum. Do you know if that makes any difference to the score?

    • Mindy Jensen

      Having a high debt-to-credit ratio is detrimental to your score. I think the advice you have heard is to charge the card no more than 30%, if you are carrying a balance. That shows responsible use of credit, rather than buying up everything you see, with no regard to how to pay for it.
      Great question, Assaf. Thanks for reading.

  6. Consumer credit builds debt, not wealth. Big Business has succeeded at convincing the consumer public we must worship the FICO gods and articles such as these continue that path. Build credit by incurring debt (i.e. SPENDING), paying on time yada yada yada. Wake up America, build real personal wealth and security, not consumer debt.

    • Mindy Jensen

      Thanks for reading, Brian.
      It isn’t necessary to incur debt to build credit. Obtaining a credit card and putting normal monthly expenses on it, then paying it off every month, or carrying a nominal balance for a month or two should not put you into debt. Unfortunately, it is difficult to build real personal wealth without having a good credit score. It can be done, but it is far easier to do with good credit.

  7. Bruce May

    Hi Mindy. Thanks for the article.

    I have a friend who claims to pay his debts early and to always pay more than required. He said those comments are reflected on his credit report and this gives him a higher credit score. Do you know if this is true?

  8. Alberto Simpson

    I would like to know how Student Loans and credit work. I know ppl with a lot of student loans but do the loans ( even though they report in good standing ) have an effect on your score and also other factors that involve credit extension decisions? Thanks Mindy

  9. Orlando Paz

    As I have learned… once your debt goes into collections, any payments made does not get reported to any of the three credit bureaus. So if you are hoping to improve your credit by paying off a debt that is in collections, you are wasting your time. A hack around this would be to use a technique similar to the one described by Brian Gibbons on this post. Only difference is that I would get a secured loan or secured credit card to pay off the collectors. Once I do that, I can make weekly or monthly payments to my secured account. This in turn gets reported to the credit bureaus, and my credit score improves while paying off a collector. I then repeat the process with each collector.

  10. In the United States, your credit score can also affect your insurance rates. Insurance companies think your credit score reflects the risks involved in insuring you. For me this is very important because insurance is expensive and with a bad credit score could increase my insurance premiums dramatically.

  11. Lance A White

    Thanks for the article and there are some great comments. Once I open a credit card account, I never close it. Closing accounts affects your debt ratio and length of credit negatively. Instead get out those seldom used cards and use them on a regular basis to buy groceries or gas and then pay them off. It’s not necessary to do it monthly, but doing it regularly keeps the credit available.

  12. Carl Gorson

    Thank you Mindy for the helpful article and to all the posts as well…I hope that it is not unusual for a new investor to have to do some house cleaning and deal with the bad financial decisions of the past. Is there anyone who I can contact one on one to discuss and go over my situation? Because I feel it is unique, hopefully it is not and it doesn’t hamper me too greatly in my goals.