Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Nov 28, 2012

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Companies across the world advertise elaborate and costly ways to help strengthen one’s credit score. But the truth is: most fixes can be achieved for free.

Credit scores are used to indicate the likelihood of a borrower defaulting on a payment — as the number increases, the potential risk decreases. Scores take into account one’s reputation with credit cards, mortgages, personal loans, banking history, and other factors. Although scores are paramount in the financial industry, many consumers are still unknowledgeable about their importance and about how to improve them. With a few simple methods, every consumer can improve their credit history and be on the path to low-interest borrowing in the near future.

Order and Review Credit Reports

In order to move forward with one’s credit history, it is fundamental to know where to begin. Without a credit report and score, it is impossible to know if one’s number is great, average, or poor.

Reports can be received for free, once a year, via the federal government on This website is the only federally approved website for free credit rating access. The three nationwide consumer reporting companies, Equifax, Experian, and TransUnion, are required to provide consumers with a free copy of their credit report once a year, upon request.  

Once a report is received, examine it carefully. Check each report to see what information is present and pay attention to possible errors. Don’t be afraid to dispute inaccurate claims present on a report. Financial mistakes are common, but unless they are disputed, they will remain on the score for years to come.

Use Credit Cards and Pay Them Off                                                         

Using one to two credit cards is an easy way to build one’s financial history. You do not need to carry a large balance to build a credit score, but the total balance should be paid off each month. Whether a person is buying a pack of gum or expensive electronics, both purchases will stimulate one’s score.

The important thing about credit cards is to mentally treat them as debit cards. If the money is not available now or when the bill is due, do not purchase anything. Just as a debit card should only be used if sufficient funds are available, credit cards should only be used when the buyer is fully prepared to repay the debt by the next pay period.

If a normal card is impossible to acquire, or owning one worries consumers, another option to consider is a secured credit card. If one’s score was lowered due to issues with repayments on personal loans or unsecured cards, lenders will be unlikely to trust a borrower again. Secured cards require the user to deposit money first as a security. The secured card will build one’s credit score in a similar fashion to a regular card.

In general for credit cards, if the card is needed, then keep it and use it. Having open accounts or credit cards that are rarely used and consider inactive, will not improve a score. Frequent use, at least several times a year, will keep lending companies reporting the scores to the bureaus.

Finally, make sure that all forms of good credit are reporting to the bureaus. Some creditors, such as gasoline card companies, entertainment, local banks and credit unions do not report histories to the three bureaus. To prevent this, first try asking the credit grantor to report the monthly statements to the bureaus. If that fails, in the future, be more cautious. Before signing up for a new account, ask if on-time payments will be reported to the credit agencies.

Make Timely Payments

Paying bills on time, whether for repayments on a personal loan, credit card, or other types of borrowing, is the single largest factor to a score. If remembering to pay a bill on time is difficult, some banks offer online payment reminders that can notify a person via text or email when a payment is due. Additionally, a lender can apply for automatic bill pay so that payments are made automatically each month.

Reduce Outstanding Debt

Using the previously acquired credit score, make a list of all open accounts in one’s name. Review each statement and record how much is still outstanding on each account. If there are several accounts, determine the interest rate for each one, then work to pay off the highest interest accounts first. It is usually effective to pay off a card with a high APR first, rather than one with a low APR, as it will save the borrower money in the long run.

But the full repayment and closing of one debt should only occur if the minimum payment requirements are met for the other accounts. Focusing on one account and ignoring payment on the other will not increase a number, but successfully and completely paying off an outstanding debt could positively affect a score.

Embrace the Lending Industry

Using borrowed money and paying off one’s debts stimulates the economy and increases a person’s financial history. Installment loans such as personal loans, auto loans, and student loans, show lenders that a particular borrower is responsible with multiple types of credit.

For example, repayment on small personal loans can provide a lending company assurance that a borrower is stable. This security achieved by personal loans will assist the borrower later on when applying for a new mortgage loan or to fund a child’s student loan.

Focus on Financial Freedom

Consumers of varying ages might feel that their credit score is unimportant, but they are wrong.

Even if a borrower is disinterested in applying for a personal loan, or is planning on renting in the future, scores are still important. Financial histories can affect auto loans, personal loans, mortgages, cash advances, even job applications. Employment background checks in most states often include a modified copy of an employee’s credit report.

Even bankruptcy victims, those who have fallen into the seeming black hole of personal finance, can reestablish their history. The faster a borrower re-establishes good credit by using and repaying debts on time, the faster their score will improve.

Managing one’s credit history and improving it takes time; anything that is done quickly is more likely to backfire. Making sensible decisions over the long term will enable a history and score that can support more affordable low-interest borrowing.