How can you increase your credit score from 500 to 700?

If your credit score is 500 (or anywhere near there), then you’ve probably run into some hard times financially and probably looking to get back on track. In fact, a good credit score – like a 700 or above – is the best way to save money on credit card interest rates, your mortgage, auto and student loans, insurance, and utilities, and even get your dream job.

So, how does one increase their credit score from a 500 to a 700?

Of course, FICO doesn’t publish their exact algorithms for credit scoring, so we don’t have a perfect formula for getting your score from a 500 to a 700. But they do outline the five factors that go into credit scoring, and even tell us the weighted percentages for each factor. With this, we do know which practices and activities will give us the best possible credit score.

According to FICO, our credit scores are determined by:

Payment history:
35% of your total credit score

Credit utilization:
30% of your total credit score

Length of credit history:
15% of your total credit score

New credit:
10% of your total credit score

Mix of credit:
10% of your total. Credit score

With this list as a guide, the first thing we need to do to boost your score 200 points to a 700 is starting paying on time. In fact, you should NEVER miss a payment if you want a great credit score. This is the single most significant factor in scoring, as the whole purpose of your FICO is so creditors and lenders can ascertain the risk of you defaulting.

If you have a 500 score, there’s a very strong likelihood that you have several collections from unpaid bills or debts, as well as possibly a bankruptcy, foreclosure, or judgments. While we can’t wave a magic wand and make those things disappear, the next best thing is to take advantage of credit protection laws and dispute them. In fact, the credit bureaus have to adhere to certain laws and regulations and follow specific guidelines for how they respond to your formal disputes.

So, for instance, if you have information on your credit report that is inaccurate, mistaken in any way, a duplicate, or just plain wrong, you can dispute it through a formal process. At that point, the onus is on that account holder or vendor to provide proof that the information they reported is accurate. If they can’t – or they don’t in time, then those negative items will be stricken from your report.

In addition, you may be inadvertently being punished for negative information on your credit report that doesn’t even belong to you! That’s right, as about 1 in 3 reports contain errors or duplicates, and 1 in 6 people these days are the victims of data hacks, ID theft, or financial fraud that affects their credit report and score.

We also need to analyze your credit utilization rate. As a general rule, it’s suggested that you keep your utilization to 30% or lower – which means that you only have a balance of $3,000 maximum for a $10,000 credit card. However, research shows that if you want a 700+ score, you probably want to keep your balances even lower, with an 8-10% utilization rate most common for those with credit scores in the 700-800 range. By the way, we can either achieve this by paying down debt balances or, if that’s not possible, requesting a credit line increase (or a combination of the two).

Your length of credit history is a tricky one, as your accounts have only been open as long as they’ve been open, and you can’t just magically create a new well-seasoned credit account. R can you? In fact, it’s perfectly legal and ethical to request that certain information is added to your credit file, which will show up as a long-held account on your credit report if that’s accurate.

You can do this by adding yourself as an authorized user on someone else’s credit card or account (just make sure they’ve had that account a long time, the balance is low, and that they’ve always paid on time!).

Another possibility is to request that one of your accounts that’s not now appearing on credit, such as older utilities, cell phones, or medical debts, start being reported.

When it comes to adding new credit, we want to do it carefully, making sure that any new debt come from high-quality lenders, have low balances (if revolving debt), and the like.

Additionally, we want to look at your overall credit profile and make sure you have a healthy mix of credit, with a few credit cards or revolving accounts but also good installment loans and even a mortgage, if possible.

It takes time, organization, and a lot of effort, but there are ways to start minimizing the negative items that are hurting you on your credit file. At the same time, start maximizing the correct items, percentages, and ratios so that your credit rises as high as possible.

Consumers can go about this themselves and have every right to do so, but often lack the time, experience, resources, and knowledge to get the end result they’re looking for.

A better alternative is to work with a reputable and professional credit repair firm like Blue Water Credit, who can act on their behalf in disputing negative information, adding what’s needed, and managing the overall credit file so that you’ll hit the 700 mark – and beyond!