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Credit 101 – How to Improve Credit Long Term


You may be wondering how to fix your credit or how to improve your credit rating. Think of this article as a crash course—How to Improve Your Credit 101—for beginners who want to learn credit basics and take charge of their financial life. 

The first step is to know what’s in your credit report and to make sure there aren’t any mistakes. The next is to pay down your debts and keep them paid down. These seven tips will help flesh out the how-tos of following those two steps.

quick-tricks-improve-credit-infographic1. Check your credit report.

You are entitled to one free credit report per year from each of the major credit reporting agencies, Equifax, Transunion, and Experian., authorized by the Consumer Financial Protection Bureau (CFPB), is a one-stop source for your free credit reports. You don’t have to get all three at once. If you get one every four months so, you can monitor your credit report throughout the year.

The CFPB also has information on getting reports from more specialized credit reporting companies.

What to Do When You Check Your Credit Reports

Make sure the information on each report is accurate, especially your name, address, and Social Security number. If there is inaccurate information in your credit history, dispute it with each agency that has the error. Give them the correct information and ask them to correct their report.

The free credit report won’t include your credit score, but you may be able to get it through your credit card company or other sources.


This rule is one of the most important credit basics to keep in mind. You might assume that a credit report that shows as few past debts as possible will help you clean up your credit. Actually, the opposite is true. Remember, you’re trying to build a credit history. A record of well-managed debt, of regular payments made on time, can show lenders you are a responsible borrower.


Now that you’ve taken the first big steps to improve your credit, it’s time to develop habits that will keep your score going up. Start with committing to paying your bills in full on or before their due dates. Experian notes that a solid payment history is the single most important factor behind the credit score you earn. 

Struggling to pay bills on time? Try these hacks:

  • Put your monthly income and expenses into a budget and see where you can tighten up your spending. 
  • If you have several bills due around the same time every month, ask your lenders about changing the due dates. Many creditors allow you to do this online by yourself, but you may have to talk to a client services representative in some cases.
  • Set reminders in your phone or another digital device, and make the payment when the reminder pops up—no excuses. 


Did you know that applying for a loan can drop your credit score by as much as 5-10 points? Why the drop? When a creditor requests your credit report, it signals that you’re looking to take on more debt, which means more of your income will go to pay off debt each month. Lenders want to make sure you can handle the extra payments.

For some loans, you may fill out several applications, searching for the best rates or terms, but in the end you only take out a single loan. Shouldn’t each application mean a drop of 5-10 points off your score? Not when the credit reporting agencies can tell that you’re just comparing loan rates for a major purchase, such as a car, a house, or a college education. When multiple inquiries for the same type of credit are submitted close to each other, the credit reporting agencies assume you’re only going to get one loan and lower your score only once. 

For these three types of loans, you have between 14 and 45 days to shop around and find the right rate for you. Once you get approved for a loan, move swiftly to make the purchase.

FYI, requesting your own credit report doesn’t ding your credit score at all.


Now that you know how to clean up your credit, you’re ready for some reliable ways to build credit. For starters, get a credit card. This is the perfect way to start building credit if you have a blank credit history.

Lenders like to see that borrowers have a mix of loans. When you’ve borrowed money for both a car and a credit card, lenders see that you can be trusted with different kinds of credit.


One factor in determining your credit score is how much credit you have compared to how much you’re using. A good rule of thumb to follow is to keep your usage below 30 percent. If you have a $10,000 credit limit, only borrow up to  $3,000.

One way to keep your usage low is to pay down your balances. A common technique is to pay off the smallest balance, then add the money you were paying on that to your payments on the next smallest balance, and so on until you’ve paid off your debts.


Unless a credit card has an annual fee or carries a penalty for not using a card for a period of time, don’t close a card you’ve paid off. Because one factor in your credit rating is the percentage of credit you use compared to the credit available to you, the unused credit on your paid-off card will lower the percentage of credit you’re using. In other words, lenders like to see that you don’t keep maxing out all the credit available to you.

If you do close a card, ask the credit card company to put a note in your credit report that it was closed at your request. This is an acceptable way to close accounts that are too much of a temptation. 

Use Your Credit Skills Wisely 

Okay, time for the final exam. What are the credit basics everyone should know? 

  • Monitor your credit reports and make sure the errors get fixed
  • Make big purchases in a short period of time.
  • Pay your bills on time.
  • Get a few credit cards and keep the accounts open.
  • Pay down your credit card balances.

These are some of the easiest ways to build credit, fix a bad credit score, and improve your credit rating overall. You’ve now officially passed How to Improve Your Credit 101

Need a loan while you’re fixing your credit score? Power Finance Texas offers installment loans that you pay off over a set period of time.