Boosting Your Credit Score Strategies for Debt Reduction

Key definitions

1.    FICO – The largest U.S. company offering credit score computing software.

2.    Pay Off – This is a good result or the advantage of having a good credit score.

3.     Credit Risk – This is the risk of lender losing the principal amount stemming from the borrower's failure to pay the loan.

4.    Lenders – They are people or organizations that lead money.

5.    Identity Theft – This is a type of illegal activity or crime in which a person takes personal information of another person and uses it to impersonate the victim in order to access his/her accounts.

Introduction to Credit Scores

Once in debt and looking to work on your credit score, you will realize that there are a lot of fallacies about credit scores or ratings out there. There are people who think that they do not have credit scores and others who believe that their scores do not really matter. These kinds of misconceptions can really affect your chances of getting a good apartment, a good job, or even favorable interest rates. The truth is, if you have bills as well as a bank account, then you have a credit score, and your score matters.

A credit score is a number that allows lenders to know how much of a credit risk a person is and how well he/she is at repaying his/her debts. It is usually between three hundred and eight hundred and fifty.

 If you have a high score, you are classified as a low credit risk, and thus more likely to get credit at good rates. In general, scores between 300 and 600s will give you trouble while scores above 720 will give you the best rate in the market.

A better score can give you a lot of savings. For example, assume that two people take a $160,000 mortgage to be repaid in 30 months. One has a low credit score and the other has good credit rating. The table below shows the interest that each person will pay.

Credit Score

Typical Interest Rate

Interest Paid


3.9 percent



8.6 percent


Clearly, the one with a high credit rating ends up paying $140,000 less than the one with a bad credit rating.

Your credit score can also be called a FICO score, a credit risk score, a FICO rating, or a credit risk rating. All these phrases refer to the same thing – the three-figure number that allows lenders to get a rough idea of how likely a person is to repay his/her debts or bills.

Credit scores are based on past financial responsibilities as well as past credits and payments, and they offer lenders a quick snapshot of your past repayment trends and current financial state. In general, your score allows potential lenders to know how creditworthy you are.

The problem with these scores is that there is a lot of misinformation circulated by scam firms who claim that they can assist you with your credit score and credit report – for a small fee, of course. This is not true.

Actually, the only way to boost your credit score is to repay your debts without any help from the so-called "experts." This article will get you well on your path to saving your money and boosting your credit score.

The Credit Score Breakdown

As we saw, your credit score can also be called a FICO score because the algorithm that calculates this rating was developed by the Fair Isaac Corporation (FICO). Most financial organizations have their unique definition of what comprise unfavorable (bad) or favorable (good) credit risk, but it is frequently categorized as follows:

Credit Score


300 – 550

Poor credit

551 – 620

Average credit

621 – 680

Acceptable credit

681- 740

Good credit

741 – 850

Excellent credit

Managing your credit score is a lifetime commitment but done right, it pays off really well. Actually, your score is among the most vital factors that determine and ensure your financial health and stability, and how fast you get out of debt.

Component of a Credit Score

Your credit score is made up of five components. They are your payment history, amount you owe, the length of your credit history, your new credit, and the type of credit you use.



Payment history

35 Percent

Amount owned

30 percent

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Length of credit history

15 percent

New credit

10 percent

Types of credit

10  percent


1. Payment History

Payment history contributes thirty-five percent of your credit score and thus has the biggest impact on your score. It consists of:

  • Any late payment
  • Number of accounts
  • How recent an event occurred
  • The account balance

2.    Amount Owed

The amount owed contributes thirty percent of your credit score and it's easier to boost than the payment history. However, reducing your debt requires a good understanding of your financial situation as well as financial discipline. The amount owed consists of:

  • Total amount owed
  • Credit utilization ratio
  • Number of accounts with balances
  • Amount owed on various accounts
  • Installment loans
  • Percentage of credit line in use

3.    Length of Credit History

The length of credit history contributes 10 percent of your credit score. It is made up of:

  • Age of the oldest account
  • Age of the newest account
  • Average age of all accounts
  • New Credit

New credit contributes ten percent of your credit score and thus has the least effect on your score.

4. Types of Credit in Use

Types of credit in use also contribute ten percent of your credit score. These accounts include:

  • Credit cards account
  • Retail accounts
  • Installment loans accounts
  • Mortgage loans accounts
  • Finance company accounts

Improving Credit Score

Different actions may affect your credit score differently because of the way scores are computed. In general, meeting your financial duties and paying off your bills on time yields the most favorable results. Here are a few strategies that can help you boost your credit rating.

1. Paying Your Bills on Time

By now you already know that one of the most effective ways to boost your credit score is basically paying your bills on time. This is a very simple strategy but it works really well because it shows potential lenders that you take your debts seriously. All lenders want to be paid on time and in full amount. Paying your bills on time tells them that you will do exactly that once they advance you the money.

In addition, paying your bills on time help you avoid financial and late fees penalties that only make footing your bills even harder.

Professionals believe that up to thirty-five percent of your score is pegged on how often you pay off your debts and other bills on time.

Here are a few tips to help you pay your bills on time;

1.    Use personal finance software with automatic bill-paying reminders: Both Quicken and Microsoft Money have features that will prompt you weeks or days prior to your bills due dates.

2.    Consolidate your bills: Assuming you get your phone service, cable TV, and internet access from the same services provider, instead of footing each of these bills individually, why don't you check with them to see if you can be allowed to consolidate your bills and pay them off in a single statement? This way, it's highly unlikely that you will miss a payment.

3.    Schedule bill paying: Set aside sometime in your calendar to go and pay bills. Ideally, make it same day and time each month. Doing so makes paying your bill and debts a habit you unlikely to break – hence no more missed due dates.

2. Lower Your Utilization Ratio

Suppose you own two credit cards. You charge $1,000 on a card with a limit of $6,000 and charge $3,000 on a card with a limit of $4,000. In this situation, you will have a ratio of 75 percent on the second card and 40 percent overall (you are using $4,000 of the $10,000 total available credit).

Your score is affected by your utilization rate or total balance-to-limit ratio and balances of the individual cards. Your ratio should be lower than 30 percent.

According to a study conducted by Credit Karma, a free financial and credit management platform for the United States consumers, the ratio should be as low as possible. This finding was proven to be true all the way towards zero but not including zero – having some debt is good for your credit score.  Here were the findings:    

Credit Card Utilization

Average Credit Score

0 percent


1 – 10 percent


11 -20 percent


21 – 30 percent


31 – 40 percent


41 – 50 percent


51 – 60 percent


61 – 70 percent


71 – 80 percent


81 – 90 percent


91 – 100 percent


101 – Plus percent


You can decrease your credit utilization ratio using the following strategies:

  • Reduce what you owe by paying your debts at the right time, paying twice a month, etc.
  • Increase your available credit by having multiple active credit cards.
  • Ask your lenders to raise your credit limit, etc.

3. Avoiding Excessive Credit

Huge debts or many lines of credit make you a high credit risk borrower. It signals to the lender that you are almost overextending your credit.

The higher the debts, the greater the monthly debt repayment, and the higher the chances that you will eventually fail to repay all of your debts on time.

Additionally, statistics shows that people with high debt responsibilities have the most difficult time financially when dealing with a crisis such as unemployment, a sudden illness, or a divorce, and this is factored into your credit score.

4. Paying Down Your Debts

Your credit score is affected when you have lots of debts. Paying down these debts to the minimum can help improve your score. For instance, if you have $10,000 limit on a credit card and you often carry a balance of $1,000, you will be more attractive to lenders than a person who have a similar card but carries a bigger balance of $9,000.

In general, ensure that you use less than fifty percent of your credit. This means that if you have a limit of $10,000 on a credit card; ensure that you repay it down to at least $5,000 and try to carry smaller balances. It's best to repay the whole amount every month.

5. Use a Variety of Credit Forms

The forms of credit you have are an important factor in computing your score. Generally, lenders like to see that customers are able to deal well with different forms of credit.

Having different types of debt such as an auto loan or mortgage and some types of personal debt such as credit cards and repaying them off on time is better than having a single type of credit.

6. Credit Score Safety

If your credit score is low, chances are that it is caused by a few minor financial oversight or mistake you might have made before. However, not all people with unfavorable credit rating have low credit scores caused by things they did. Sometimes, another person's criminal activity can change your credit score. The good news is that there are a few strategies that you can follow to keep your credit safe from financial and online predators. Do the following on a regular basis.

7. Looking Out for Identity Theft

An increasing number of individuals keen on having minimal debts and paying bills on time are getting shocked every year when they find out that their credit scores are extremely low. In most situations, this scenario occurs due to identity theft.

For example, a person with your PIN can withdraw small amounts of cash from your account every month. Similarly, a person can use your personal information such as name, identity card number, etc to apply for a credit card and use the money with no intention of repaying it back. The end result, you, not them, will be unfairly struck by huge debts and low credit score.

To avoid identity theft, inspect your account's statement every month, and report all suspicious events or charges you do not recognize at once. Moreover, inspect your credit frequently and immediately review any new credit account you do not recognize – this is one of the most successful ways of detecting as well as acting on identity theft.

8. Practicing Safe Banking and Computing   

To prevent all cases of identity theft, always follow these safe banking as well as financial practices:

  • Keep your account PIN and number safe.
  • Only conduct business with people or business you trust.
  • If you receive an application form for a credit card in your mail which is pre-approved, rip up the application and enclosed letter before you discard them.
  • If you use a laptop to make your transactions, install good antivirus and firewall protections systems and update them regularly.
  • Never purchase any good online from a firm you do not trust.
  • Avoid providing your personal information to your computer or email.
  • Be wary of unsolicited phone calls, emails, or mail advertisements.
  • Be wary of discounts or offers that are not realistic.
  • Read the terms and conditions before application for a credit card to avoid being charged extra or hidden fees.

9. Checking Your Credit Score Frequently

You are highly likely to realize any problem or inconsistency if you check your score on a frequent basis – at least once per year. Sometimes, your low rating can occur due to errors made by the credit score bureau.

Common Credit Score Mistakes

There are some things that people do without realizing that they have a negative effect on their credit scores. Follow these strategies to avoid the common mistakes that can affect your credit score rating:

1. Avoiding Credit and Debts You Do Not Need

Do you apply for credit cards and forget about them after a year or two? These account remains on your rating reports and they do affect your score. Having credit cards and credit lines you do not need makes you look like you are at risk of overextending your credit.    

Additionally, having a lot of accounts you do not use increases the chances that you will forget about them and stop making payments on them – leading to a bad credit score.

So, keep only your active accounts and ensure that dormant ones are closed. Having two or three accounts will ensure that you keep track of all your debts. It boost your chances of a higher credit score.

2. Be Careful with the Number of Credit Report Inquiries

Every time a person makes an inquiry on your credit report, it is noted. If you have dozens of inquiries in a few months, it may seem like you are trying to get lots of loans at once or that you have been turned down by lenders. Both will make you appear like a high credit risk borrower and this will affect your credit rating.

If you are looking for a loan, look around within a few days - inquiries made within days are often lumped together and considered as a single inquiry. You can even reduce the number of inquiries through approaching lenders you have worked with before and are interested in offering you a loan. Aside benefit, since you paid and they know you actually pay your debt, you can negotiate for a lower rate.

3. Be Careful with Web Loan Rate Comparisons

An online loan rate quote is very easy to get – type in your personal information and you will get a quote on your personal loan, car loan, mortgage or student loan in seconds.  Online rate comparisons are not only free, but also super convenient.

Thus, many individuals use them to run multiple searches to compare different firms and get the best deal. However, there is a problem – because this is a recent phenomenon, bureaus count every search as a new inquiry.

The best strategy is to do your own research, narrow your list to the best 3 lenders and then request for quotes from them. This will ensure that the numbers of inquiries on your report are less and thus your credit rating will remain healthy.

4. Realizing that Having Loans and Debts Increase Your Score

Some individual assumes that having no credit cards or owing no money or even avoiding the world of credit will boost their credit score. On the contrary, the opposite is true – lenders lend to people who have proven that they can pay their debts on time. If you do not have a credit account at all, consider opening a low balance account for a credit card to improve your credit score. 

Ensure that you develop your credit management strategies as early as possible and exercise discipline as well as patience consistently. In addition, remember that favorable credit score is realizable no matter when or where you start – it pays off handsomely.