5 Ways to Boost Your Credit Score Before 2015

Jesse Collins
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If you’re planning on buying a house, refinancing your current mortgage, or simply working to strengthen your financial future, improving your credit score is crucial. Your credit score directly impacts the interest rates you’ll be offered on loans, especially for big financial decisions like a mortgage. A higher score typically translates to lower interest rates, saving you thousands over time. This guide will walk you through five actionable steps to boost your credit score before making significant financial moves, including a home purchase or refinance.

What Is a Credit Score, and Why Does It Matter?

Before diving into the specific ways to improve your credit score, let's cover what a credit score is. A credit score is a numerical representation of your creditworthiness. It’s based on factors like your payment history, the amount of debt you owe, how long you've had credit, and more. FICO scores, which are the most commonly used by lenders, range from 300 to 850. The higher your score, the more trustworthy lenders consider you. A score above 700 is generally seen as good, while scores above 750 are considered excellent. Lenders, including mortgage companies, use your credit score to assess how likely you are to repay a loan. If you’re planning to apply for a mortgage, having a higher score can make a significant difference. It can mean a lower interest rate, which reduces your monthly payments and total repayment amount over time. Now, let's look at practical strategies to help you achieve a higher credit score in the New Year.

1. Avoid Incurring New Debt Over the Holidays

The holiday season is known for bringing out the shopper in all of us, with gifts, travel, and festive gatherings. However, taking on new debt can negatively impact your credit score. While it’s tempting to charge holiday expenses to your credit card, it’s important to remember that new debt increases your credit utilization ratio. This ratio compares how much credit you’re using versus your total available credit, and a high ratio can lower your score. Instead of relying on credit cards, try to stick to cash or the money you have in your checking account. Budgeting ahead for holiday expenses allows you to enjoy the season without hurting your financial health. You could even consider spending less on gifts or festivities and using those funds to make extra payments on any existing debt. This strategy helps you reduce debt and improve your credit score.

Tip: Plan your holiday spending ahead of time. Set a budget for gifts, travel, and other expenses, and stick to it. Using cash or a debit card is a smart way to ensure you don’t overspend.

2. Pay Your Bills on Time—Every Time

Your payment history is one of the biggest factors affecting your credit score, accounting for around 35% of the total calculation. Late or missed payments can have a significant negative impact. Even a single missed payment can lower your score by 50 to 100 points, depending on how high your score was to begin with. The good news is that paying your bills on time is one of the easiest ways to maintain and boost your credit score. To stay on top of your payments, consider setting up automatic bill pay for your credit cards, utilities, and other monthly obligations. This ensures that you never miss a due date. Just be sure to keep track of the payments to ensure they’re being processed correctly, and there are no errors. Regular on-time payments show lenders you are responsible, which makes you more attractive when applying for a mortgage or other loans.

Tip: Set up calendar reminders or automatic payments for your bills to prevent late payments. Double-check your statements each month to catch any errors or discrepancies.

3. Manage Your Credit Utilization Ratio

Your credit utilization ratio, or the amount of credit you’re using compared to your available credit, is another key factor in determining your credit score. A low credit utilization ratio (30% or less) shows lenders that you're not overly reliant on credit. If you have maxed out credit cards or are carrying balances close to your credit limits, it can signal financial stress and hurt your score. If you already have credit card debt, start by paying down your balances to reduce your utilization ratio. Prioritize paying off cards with higher balances or higher interest rates first. For example, if you have a credit card with a $10,000 limit and you’ve charged $3,000, your utilization ratio is 30%. Paying off even a portion of that balance will improve your ratio and boost your score. If you don’t have any credit history, consider opening a credit card and using it responsibly. Use the card for small, regular expenses, and pay off the balance in full each month. This builds your credit without incurring interest or accumulating debt.

Tip: Keep your credit card balances below 30% of your total credit limit. If possible, aim for an even lower ratio, such as 10%, to see a more significant impact on your score.

4. Don’t Open or Close Credit Accounts Unnecessarily

Many people mistakenly believe that closing a credit card they no longer use is a good idea for their credit score. However, closing accounts can actually lower your score. One reason is that closing a credit card reduces your available credit, which can increase your credit utilization ratio if you have outstanding balances on other cards. Additionally, the length of your credit history is a factor in your credit score, so keeping older accounts open helps build a longer credit history. On the flip side, applying for new credit cards should also be approached with caution. Each time you apply for a new line of credit, a hard inquiry is made on your credit report, which can temporarily lower your score. Instead of opening new accounts or closing old ones, focus on managing the accounts you already have and keeping your utilization ratio low.

Tip: Avoid opening new credit accounts unless absolutely necessary. Keep old accounts open to help maintain a longer credit history and a lower utilization ratio.

5. Increase Your Credit Limit Strategically

If you’re in a stable financial position and have a good payment history, you might consider asking your credit card company for a higher credit limit. Increasing your limit can lower your credit utilization ratio, provided you don’t use the additional credit for unnecessary spending. This strategy is helpful if you're planning a large purchase in the future, such as a home or car. For example, let’s say you have a credit card with a $5,000 limit and a $2,500 balance. That puts your credit utilization at 50%. If you increase your limit to $10,000, your utilization drops to 25%, which can have a positive impact on your score. However, if you’re worried that a higher limit will tempt you to spend more, it’s best to avoid this step and focus on paying down your existing debt instead.

Tip: Contact your credit card company to ask for a credit limit increase. Just be sure not to use the extra credit for unnecessary purchases.

Bonus Tip: Monitor Your Credit Report Regularly

In addition to following these strategies, it’s important to keep an eye on your credit report to ensure there are no errors or fraudulent activities impacting your score. You're entitled to one free credit report annually from each of the three major credit bureaus (Experian, Equifax, and TransUnion). Review your reports for any inaccuracies and dispute them immediately to ensure your score reflects accurate information.

Tip: Take advantage of free credit report services to check your credit report at least once a year. Look for any errors, such as incorrect balances or accounts that don’t belong to you.

Improving your credit score may take time and effort, but the rewards are well worth it. A higher score opens the door to better loan options, lower interest rates, and greater financial security. Whether you're planning to apply for a mortgage, refinance your current loan, or just want to improve your financial health, these steps will help you boost your credit score and set yourself up for success in 2015. By avoiding new debt, paying your bills on time, managing your credit utilization, keeping accounts open, and monitoring your credit report, you’ll be on your way to achieving a strong financial foundation. If you’re ready to take the next step and apply for a mortgage, Carlyle Financial is here to help. We can guide you through the process and provide personalized advice to ensure you get the best mortgage rate possible.
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Jesse Collins

In the last thirteen years, Jesse has managed more than $400 million in residential financing. His extensive experience…
VP of Mortgage Lending
San Francisco
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About Jesse Collins

In the last thirteen years, Jesse has managed more than $400 million in residential financing. His extensive experience with complex financials and funding provides Carlyle Financial clients with agile customized jumbo home loan products. Jesse specializes in residential lending for the Los Angeles, Beverly Hills, Orange County, and San Diego markets. With each loan he closes he makes a donation on behalf of his clients to the ALS Association.