Debt Repayment: Increasing Your Credit Score

What is a Good Score?  

Your credit score is basically your financial reputation represented by a 3-digit number. That number has been relied on by 90% of lenders since 1989 to determine how responsible you are and how likely you are to repay your debts.  

Credit scores range from 300 – 850 and where yours falls can impact whether you are granted a loan, hired, or insured as well as your ability to maintain a security clearance. A low score will often result in higher interest rates and less attractive terms, also.  

Credit Scores fall in the following ranges:  

• Subprime (poor)   300-600 Denied or approved with unfavorable rates and terms 
• Near Prime (fair) 601-660 Reasonable or good rates and terms  
• Prime (good) 661-780 Better rates and terms  
• Super Prime (excellent) 781-850 Best rates and terms  

Here are simple moves you can make to build or repair your credit and increase your score.  

Address Collections & Charge-Offs 

Maybe you’ve made some credit mistakes in the past – it’s OK! The good news is that credit is forgiving. You can recover from past credit mishaps and rebuild a healthy credit file, but collections and charge-offs need to be addressed to do so. Negative accounts can stay on your report for 7 years from the date of the first late payment, which is a long time for something to be held against you. Even though handling it won’t make it completely disappear, someone who has worked to correct and pay their past debts appears less risky to lenders.  

Start by checking all 3 credit reports (Equifax, Experian, and TransUnion) at annualcreditreport.com to see exactly what past due accounts are reporting and then make a plan to address the debt.  

Open a Credit Builder Loan or Secured Credit Card  

Adding or maintaining a positive payment history is the most effective way to build or repair your credit file. If you aren’t able to qualify for a traditional loan or credit card, both credit builder loans and secured credit cards can be used to boost your score. 

Credit builder loans work by making payments to the lender, who then reports those payments to your credit file. Once you make all the payments, then your balance minus a fee or interest charges will be returned to you.    

Secured credit cards are like traditional credit cards, but require a security deposit be made up front to guarantee the account. You then use the card and make on-time payments that are reported to the credit bureaus. After some time has passed and you have created positive history, the credit card company will often convert the card to a traditional credit line and return your security deposit.   

Both will typically begin to impact your score after 6 months of good payment history.  

Make All Payments on Time and in Full Each Month  

Paying on time is the biggest factor contributing to your credit score. It accounts for 35%, so making all payments in full and on time is crucial to gaining or improving a credit score.  

Taking an active approach is the first step to ensuring all your bills are paid on time and reporting to the credit bureaus correctly.  We recommend that you make a list of all payments due, the amounts and due dates, then decide how you would like to pay. Take control and set up calendar reminders and auto payments to keep you on track.  

Maintain Low Overall Utilization  

The second largest factor in determining your credit score is your overall credit utilization ratio. Controlling it can have a major impact on your score.  

Your overall credit utilization ratio is the percentage of your credit limits you are using. Basically, your credit card balance verses your available credit or limit. To maximize your credit score, it’s recommended that you maintain a balance at or below 30% of your available credit. For example, let’s say you have a $1,000 credit limit. The credit equation likes you to maintain a balance at or below $300 of your limit at all times. Carrying balances above that consistently can harm your overall credit score.   

It's important to know that this credit equation takes all revolving credit lines into account, so maxing just one can have an impact, even if you are carrying low or no balances on other cards.  

It may seem like a lot of work, but a healthy credit file is worth it. A higher score will make you more attractive to lenders and qualify you for lower interest rates and better terms in the future.   

Remember, your score is affected most by what you are doing now, not the past.  

Jump start your future and take control of your finances by taking the Veteran Saves Pledge today! We believe that paying down debt is saving! When you take the pledge, we’ll be your partner and encourage you along the way with tips and resources to make savings easier.