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Debt

The Best Way to Improve Your Credit Score

Want to know how to improve your credit score? It’s simple: Pay off your debt, don’t add any new debt, and let your credit score dwindle until it’s completely extinct.

Not the answer you were expecting? If you’re like most people, you’re probably shaking your head in disbelief wondering, How can I improve my credit score by letting it go extinct? And don’t I need a credit score to buy a house?

Trust us: Not having a credit score is a good thing—a really good thing! And you absolutely don’t need a credit score to buy a house. Keep reading and we’ll share more on that later.

Listen: It’s time to get rid of your credit score once and for all. Are you intrigued? Good. Keep reading and we’ll explain exactly why you don’t need to worry about your credit score anymore.

What Is a Credit Score?

A credit score is a three-digit number that tells banks and lenders how likely you are to repay your debt. A high score, usually 800 or above, is considered exceptional by most credit monitoring agencies. And a much lower score, typically 579 or below, is considered poor and will make it harder to borrow money.1

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Where does this number come from? Well, there are multiple credit reporting agencies that make up your credit score—and your score is going to be slightly different depending on where you look. FICO and VantageScore are two of the most popular.

But no matter which score you’re looking at, a credit score is really an “I love debt score.” Why? Because your credit score is really just a measure of how comfortable you are taking on mountains (and mountains) of debt.

Take a look at how this score is calculated and you’ll understand why.

How Is a Credit Score Calculated?

Calculating your credit score may not be as complicated as doing long division the old-fashioned way (you know, with a pen and paper), but it does involve a few important factors.

According to FICO, there are five things that can impact your score:2

  • Payment history (35%)

This is a deep look at your entire credit history, taking into account any missed payments, debts in collections or if you’ve filed for bankruptcy.

  • Amounts owed (30%)

Turns out, credit bureaus don’t like it when you use too much of your credit (or not enough). If you’re using most of your credit limit on your accounts, bureaus might ding you just because they think you’re in over your head.

  • Length of credit history (15%)

Bureaus look at how long you’ve had your accounts. This category is made up of how long your accounts have been established, how old they are, and how much time has passed since you’ve used them.

  • New credit (10%)

Credit bureaus look at this because they want to know how many new accounts you’ve opened recently. If you don’t have a long history with credit, they’ll see this as a bad thing and ding your score.

  • Credit mix (10%)

This is a mix of the types of accounts you hold. Credit bureaus take a look at what kind of debt you have: personal loans, credit cards, mortgages and more. Turns out, they don’t really care what kind of debt you have—they just like to be nosy about it.

No matter what your credit score is, there’s nothing about it that indicates you’re great with money. A credit score doesn’t take into account the important stuff (like how good you are at balancing a checkbook, keeping a budget, or investing in mutual funds). What a credit score really does is monitor how good you are at borrowing money (taking on debt) and paying it back over the course of your life.

If you happen to have a credit score north of 800, creditors may treat you like royalty and roll out the red carpet at the drop of a hat. But here’s the catch: Your “superior” score in no way, shape or form indicates that you’re actually good at handling money. It just means you’re good at borrowing lots of money (and paying it back on time)!

How Do I Improve My Credit Score?

If you want to know how to increase your credit score the “traditional” way, these are the things credit bureaus like to see:

  • Paying your bills on time
  • Paying off debt
  • Carrying a balance that’s less than your credit limit
  • Disputing inaccuracies

But remember, all they care about is padding their pockets. They know that by dangling a three-digit number in your face and telling you your world should revolve around it, they can keep you stuck in the cycle of debt.

We’ve said it before, and we’ll say it again: The best way to really increase your credit score is by ditching credit altogetherPeace out, credit score—you’ve been dumped! Don’t tell the credit bureaus this, but your financial success depends on the numbers in your bank account, not the numbers on your credit report. Crazy right? (Not so much.)

The only way to truly improve your credit score is by paying off debt and committing to a debt-free lifestyle right now. No more loans. No more credit cards. No more borrowing money for things you can’t afford.

As you build up your own financial security, you might see your credit score start to dwindle. But don’t freak out . . . That’s actually when it’s time to celebrate. And once those numbers vanish completely, that means you’ve made it. The real measure of financial success will be when your score reads undeterminable and you’ve got money in the bank, your retirement accounts are fully funded, and you’re living and giving like no one else. Welcome to your new life of debt freedom and financial security.

Oh, and don’t worry about a credit score when it comes time to buy a new home. You don’t need a stinking credit score for that either (despite what people might tell you). There’s a process called manual underwriting that looks at the full picture of your financial stability, rather than just your credit score. See? You can breathe easy.

While the numbers on your report will lose all meaning, you’ll still want to keep an eye on your credit. Unless you’ve got all your cash buried in the backyard (don’t do that), identity theft and debit card fraud can still catch you off guard. It’s important to read your credit report once a year to make sure no one has tried to pull anything sneaky on you. Grab a free copy of your credit report every year from one of the three major credit reporting agencies—Equifax, Experian and TransUnion—to check for any suspicious activity.  

So, instead of wondering how to increase your credit score by a few points, start focusing on building wealth and securing your financial stability for the future of your dreams. That’s a far better way to spend your time. Here’s how:

How Do I Build Wealth Without a Credit Score?

Rather than fixating on the things you can’t do without a credit score (like go into debt), think about the things you can do when you’re finally free of monthly payments and have zero debt. Have you always wanted to take a backpacking trip in the south of France? Have you ever wanted to invest in the stock market so you can retire the way you want? Or have you given a thought to saving for your kid’s college education?

Well, when you’re not sending a third (or more) of your paycheck to creditors for all the loans you took out, you’re free to do whatever you want with your income—and that includes investing for the future and giving generously.

Ready to Live Without a Credit Score?

Spoiler: Improving your credit score doesn’t involve opening up another credit card account or taking out a risky loan on a brand-spanking-new automobile. Remember, if you’re looking to improve your credit score, the best thing you can do is pay down all your debts and say goodbye to your score altogether.

Ditching your credit score is just one step on the journey toward financial peace. Unsure of how or where to begin? Check out our Get Started Assessment. We’ll help you figure out where you are with money now so you can get to where you want to be: managing your money like a pro! Then, dive into Financial Peace University. It’s our nine-lesson course on how to dump debt, save for emergencies, and take control of your money once and for all.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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