Experts Share Advice on Improving Your Credit Score

Lisa Hunt, a financial expert at USX Federal Credit Union

Many people feel helpless when it comes to their credit scores, believing there's nothing they can do to change the numbers. Lisa Hunt, a financial expert at USX Federal Credit Union, wants to dispel that myth right away.

“The first thing is that people think there's nothing they can do, that their score is what it is,” Hunt said. “And that's not the case.”

Understanding what affects your credit score and taking concrete steps to improve it can make a significant difference in your financial future. Two credit union professionals share their insights on common misconceptions and practical strategies for building better credit.

Common Misconceptions About Credit

One of the biggest myths Hunt encounters is that checking your own credit will hurt your score. In fact, consumers have been legally entitled to check their own credit reports since 2003. These self-checks are considered soft inquiries and have no impact on your score.

Another widespread misunderstanding involves marriage. Many people believe that getting married combines their credit reports with their spouse's. Credit reports remain separate, though couples’ scores may become similar over time as they take on joint financial obligations.

People also often misunderstand what information appears on credit reports. Your job, salary and marital status don't affect your credit score. Additionally, not all accounts will show up on your report, and paying off negative items like collections doesn't make them disappear immediately. Most negative information stays on your credit report for seven or more years.

Starting From Scratch

For young adults with no credit history, the time to start building credit is right out of high school. Hunt recommends getting at least two credit cards with small limits.

“Talk to trusted resources to find a good credit card,” Hunt advised. “That is something that in this day and age you need, and you need to have at least two credit cards because at some point, one of your cards is going to get used fraudulently, and you'll need a backup option.”

The key is using these cards responsibly. Hunt suggests using a credit card for necessary purchases like gas and paying it off each month rather than using it for discretionary spending. It takes up to three months for credit transactions to appear on your credit report, so starting early gives you time to build a solid history.

Paul Fero, CEO of North Districts Community Credit Union, emphasizes that avoiding credit altogether is a mistake. People who prefer to pay only cash and avoid credit cards aren't helping themselves. “Without a credit score, you'll either be denied credit or pay much higher interest rates when you do need to borrow,” he said.

First Steps to Improvement

If you're dealing with a poor credit score, the first step is obtaining your credit report from AnnualCreditReport.com. You're entitled to one free copy from each of the three credit bureaus — Equifax, Experian and TransUnion — once per year.

Hunt recommended printing the report and reviewing it line by line. She discovered years after graduating college that one of her student loans was reporting twice, making it appear she had $7,500 more debt than she did. If you find any errors, you're legally entitled to dispute them.

However, Hunt warned against using credit repair agencies. These companies flood credit bureaus with dispute letters, and while bureaus must respond within 30 days, they can restore the negative items later if they determine the information is accurate. This can hurt your credit more than leaving the negatives in place.

Managing Credit Card Balances

One of the most important factors in your credit score is your credit utilization ratio. Hunt and Fero both recommend keeping your statement balance under 30 percent to 33 percent of your credit limit. This applies cumulatively across all your credit cards.

If you have a $10,000 limit, don't charge more than $3,000 on it. For those planning major purchases like a home, Hunt says 30 percent utilization is ideal. “You want to treat your credit card as a 30-day loan,” she explained.

When credit card companies offer to increase your limit, accept it. A higher limit with the same balance improves your utilization ratio, which helps your score.

The Impact of Credit Inquiries

Hard inquiries occur when you apply for credit and can reduce your score by roughly five points. If approved for the loan, you'll see an additional 10-point drop, totaling 15 points. You'll recover these points over six to 12 months.

However, the credit scoring algorithms recognize rate shopping. When you're making a major purchase like a car or home, multiple inquiries within a short timeframe count as just one inquiry on your report.

Soft inquiries, such as preapproved offers you didn't request or checking your own credit, have no impact on your score.

Dealing With Collections and Delinquencies

If you're struggling financially, Hunt recommends reaching out to creditors before you miss payments. Being upfront about your situation improves options for assistance. If you already have delinquencies, bring them current as quickly as possible. This can help you recover 60 percent of your lost points.

For accounts in collections, the situation becomes more complex. Every time a collection agency contacts you, it restarts the clock on your credit history. Sometimes you can settle for less than you owe, particularly with medical debt, though this will be noted on your credit report. The best approach is paying off the debt completely, if possible, which allows you to recover most lost points within 24 months.

Fero warned about debt settlement, noting that the difference between what you owe and what you pay becomes taxable income reported on a 1099-C form.

Building Long-Term Credit Health

Both experts emphasized that paying bills on time is the single most important factor in your credit score. One late payment can significantly impact your score, and your most recent two-year payment history carries the most weight.

Fero recommends having a variety of credit types, such as an auto loan and credit cards, but managing them responsibly. He also advises avoiding high-cost lenders like finance centers that charge origination fees and extremely high interest rates.

Finally, don't close old credit accounts if they're not costing you anything. Closing accounts can dramatically drop your score. Even paying off long-term student loans can temporarily lower your score.

Hunt and Fero both stressed that free resources are available through credit unions, the three credit bureaus and websites like MyFico.com. You don't need to pay for credit monitoring or repair services.

“Anyone can have the rug pulled out from under them without warning,” Hunt said. “The key is acting, staying informed and working with reputable financial institutions that can help you build and maintain strong credit.”