Paying off your debt is a huge accomplishment. It shows that you have financial discipline and can manage your finances responsibly. You have to maintain some debt to raise and maintain your credit score. Raising your score is an ongoing process because it can go back down if you do the wrong things. You don't have to build up big balances, but you must use credit regularly and maintain a good payment history to have the highest possible score.
Step 1
Keep your current credit cards open. You may be tempted to close them once you have completely paid off your balances. Fair Isaac Corp., which calculates FICO credit scores, says this will lower your score because it impacts your credit history length. Long-term accounts are better for your score than new ones.
Step 2
Make credit card purchases regularly. You don't have to carry a high balance that incurs interest every month. Create a budget that lets you use your credit cards for regular purchases and pay the balance in full every month. FICO wants to see whether you make your payments on time, so using your cards in this way will raise your score by maintaining a prompt payment history. You can even make this strategy pay off for you if you have a card that gives you cash rebates, airline miles or some other bonus for use.
Step 3
Consider taking out an installment loan when you need to make a big purchase. FICO likes to see a mix of different types of accounts. Credit cards are revolving credit because the balance and payments vary. An installment loan is for a fixed amount and runs for a certain length of time, with fixed payments. Two common examples are mortgages and car loans. You may be able to get an installment loan at a very low interest rate. For example, some car dealers offer zero percent loans. They require an excellent credit rating, but you may qualify if you made your payments on time while paying off your debt.
Step 4
Watch your credit reports closely to make sure there are no negative errors that could harm your credit score. TransUnion, Experian and Equifax often list mistakes on your reports. The Federal Trade Commission says up to 16 percent of credit reports may contain incorrect negative information. You are entitled by law to a free report every year from each individual bureau. Order one report every four months and repeat the process the following year to continuously monitor your credit history. Dispute mistakes as soon as you find them, as the bureaus must investigate them within 30 days and correct or remove them.
Tips and Warnings
- You can raise your credit score with a secured credit card if it extremely low. Your credit card companies may have closed your accounts if you skipped payments prior to creating a debt payoff plan. You need credit to bring your score back up, so apply for a secured account. You put money into an account to cover your credit limit, which eliminates card issuer's risk. Your score will be raised if you make on-time payments just as it would be with a regular credit card account.
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