The middle class may be shrinking in most parts of American life, but it’s thriving in the credit score space.
Over 60% of Americans have a credit score between 550 and 800 — which roughly corresponds to an average-to-excellent rating.
In truth, you really need a credit score above 580 to start getting any benefits. And most loans and credit cards reserve their best rates and deals for those with a 780 and up.
But that’s just minutiae. My point is — if you’re like most Americans — you’ve got a credit score that’s somewhere in the middle of the spectrum. And you want to get it up into the top tier.
(If you have a score lower than 550, go here to find out the best way to escape the lowest class of credit.)
No problem — we’re here to help. Since you’ve already got an acceptable score, you’re probably doing most things right. And if you are willing to wait a few years (and be responsible that whole time), you’ll eventually and naturally break through to a score in the 800s.
But we want to hurry that along. After all, the sooner you bump up your credit score, the sooner you can turn your credit into cash.
So let’s take a look at four things you can do to move your credit score from the middle class to the upper crust.
Credit Builder #1: Pay Down Your Credit Cards First
You might have lots of types of debt. The general rule is you should pay off the debt with the highest interest rate attached.
That certainly makes sense. However, if you’re more concerned with goosing your credit score — as opposed to worrying about the size of your monthly payments — you should attack any credit card debt first.
Luckily, credit card debt also usually carries high interest rates. Even if it doesn’t, you need to get rid of your credit card debt if you want to supercharge your credit scores.
You see, credit card utilization — the percent of your potential credit limit you are actually using — makes up 30% of your credit score. If you’re using 10% of your credit availability — for example $1,000 owed out of $10,000 in total credit limits — that’s better than using 15%. But much worse than using 5% or less.
Every single point makes a difference. If you’re above 30% credit card utilization, that’s a flashing red danger sign. Get that credit card debt down immediately!
Obviously, the best possible option is to pay off all your credit cards every month. But if you can’t quite swing that, pay as much as you can afford.
The less of this interest-heavy debt you carry, the better — in every possible way.
Credit Builder #2: Pay Early
Take a look at your credit cards and note when every billing cycle ends — probably on the same day every month, like the 20th.
Most people wait until that date comes, see how much they owe and then pay it off at the eleventh hour, just before the cycle ends again.
That’s a fine way to do it. In fact, it makes fiscal sense — if you buy something at the very start of a cycle and pay it off at the very end of the next cycle, that’s like getting an interest-free two-month loan.
However, if you want to improve your credit score, you ought to pay off your credit cards before the cycle even ends.
The reason is simple: Credit card debt counts against your credit card utilization, regardless of whether it’s a long-term balance or something you’ll pay off immediately.
But the credit card companies only report what you owe once a month — when the billing cycle ends.
If you pay off your credit card bill just before the cycle ends, your credit card will report that you don’t owe any money (or owe a minimal amount if purchases processed between your payoff and the end of the billing cycle).
This is an incredibly effective way to crush it with your credit card utilization, driving it down to 1–3% without changing your spending habits in any way. In fact, it might be the most effective method for zooming your credit score up in the shortest amount of time possible.
Just don’t forget to check back in after the cycle ends and pay off any remainder as well. If you have a $10 charge that came out of “pending” and you let it sit there past the due date — there goes your on-time record.
And since on-time payments make up 35% of your credit score, letting a small credit charge trigger a late payment alert is shooting yourself in the foot.
Credit Builder #3: You’re Never Late
Obviously, you never want to make any late payments.
But if you do — fight it.
It used to be that most credit cards had something of a gentleman’s agreement with clients — if you were only late on one payment and you called up to ask that to be expunged from the record, they’d happily comply.
Almost like accident forgiveness, but for your credit score.
But those days are gone. There’s no guarantee that credit cards will excuse a late payment just for asking.
Still, it doesn’t hurt to try.
Sometimes, you can just say something like, “I don’t think that’s fair,” and they’ll get rid of it for you.
If you can provide an explanation — a computer that crashed and had to go into the shop for two weeks, for instance — your odds are improved.
If you legitimately were late, there’s only so much you can do. Especially if it’s not your first time.
But if there’s a reason behind it — or if the credit card company got it wrong — never stop fighting. A single late payment can knock your credit score down 100 points.
And getting one expunged can jump you up that same 100.
Credit Builder #4: Credit Builder Loans
Credit builder loans are accounts designed entirely to get your credit score up.
Here’s how they work:
- A bank — usually a smaller local union — will offer you a loan, anywhere from $300–5,000.
- They put that money into a savings account, which is frozen.
- You pay the loan off in monthly installments.
- When you’ve completely paid off the loan, you get access to cash.
In many cases, when you successfully pay off the loan, you get a refund or rebate for some portion of the interest you paid. One Texas credit union charges a 12% interest on credit builder loans — but returns half of it when the term is up.
Lots of people recommend credit builder loans for folks with poor credit, as you usually don’t need a good credit score.
That’s fine — except many people with poor credit have poor credit for a reason. They can’t pay back their loans on time, for whatever reason. And if you take one of these loans and start making late payments, you’ll be worse off than where you started.
That’s why I prefer to use credit builder loans once you’re in good enough shape you don’t have to worry much about missing payments.
Another benefit of this type of account is the diversity it provides. You see, a small but significant part of your credit score is showing you can successfully pay off all kinds of loans.
Having eight credit cards will only get you so far… It would be better to have two credit cards, one auto loan and one mortgage.
Credit builder loans give you exposure to a rather rare type of bank loan. And that diversity can really pay off. Not to mention, in this case, most of your monthly payment is coming back to you.
Of course, it’s better to keep all the money and not have to pay any interest… But that interest payment can be worth it if you use it to jump up your credit score — and force yourself to save up cash you wouldn’t normally have.
Again, this strategy isn’t for everyone. But if you can afford the monthly payment — and don’t trust yourself to put that amount into a savings account without the threat of default — then a credit builder loan could be perfect.
A few months of using these tricks and you’ll have a credit score you can brag about. And that’s when the fun really begins — when you can start turning your credit score into investible cash.
In future issues, I’ll show you exactly how to do that.
Editor-in-chief, Unconventional Wealth
P.S. It goes without saying, if you don’t have enough credit cards, it’s incredibly tough to build up your credit score. Here are some of our favorite credit cards — which come with a plethora of perks beyond the immediate credit help.
Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
Ryan Cole is the editor-in-chief of Unconventional Wealth. He’s been covering the alternative investment space for nearly a decade and writing about finance and investment for almost 20 years.
Ryan has walked the walk for years, living a very unconventional life. He’s led snowmobile tours through the mountains of Colorado, settled in Japan for five...