5 Ways to Improve Your Credit Score

Aloha, fellow islanders! Today, we're diving into one of the most crucial aspects of financial well-being: improving your credit score. Whether you're dreaming of a new home in the lush valleys of Manoa or planning a surf trip to the North Shore, having a healthy credit score is essential.

To participate in our Accelerated program and enjoy all the benefits of travel credit cards, you’ll need a credit score above a 700.

In order to increase your credit score, lets first look at the factors the affect your credit score:

What makes up your Credit score?

  1. Payment History (35%): Your track record of timely bill payments weighs heavily on your credit score. Late payments, especially those exceeding 30 days, can significantly impact your score, as can accounts sent to collections or marked by charge-offs, bankruptcies, foreclosures, or other negative events. The frequency and recency of missed payments also affect your score.

  2. Amounts Owed (30%): The FICO Score 8 considers your credit utilization ratio, assessing how much debt you have compared to your available credit limits. Lenders look at your total credit utilization, balances on different types of accounts, and your total debt compared to the original loan amounts.

  3. Length of Credit History (15%): Creditors value a lengthy credit history, examining how long you've had credit obligations, the age of your oldest account, and the average age of all your accounts. While longer histories are favorable, this factor holds less weight, acknowledging that borrowers with shorter histories may still demonstrate responsible credit management.

  4. Types of Credit in Use (10%): The FICO formula evaluates your credit mix, assessing whether you have a variety of credit types such as credit cards, installment loans, and mortgages. While having diverse credit types is beneficial, this factor carries less weight, so there's no need to open new accounts solely to increase your credit mix.

  5. New Credit (10%): FICO Score 8 assesses the number of recently opened accounts, considering both the volume and timing of new credit inquiries. Multiple recent inquiries may indicate increased credit risk, leading to temporary score decreases, as borrowers often seek new credit during periods of financial strain or when planning significant debt expansion.

Now that we know what influences Credit Score, here are five practical tips to increase and maintain a great credit score:

How to check your Credit Score?

We often recommend Credit Karma to do a “soft check” on your credit score. This soft check does not affect your credit score, unlike a hard inquiry which is taken when you take out a mortgage from the bank. Credit Karma also gives you data on the payment history, credit utilization, average age of credit, and hard inquiries. Here is the link to Credit Karma.

5 Practical Tips to Increase Your Credit Score

 

  1. Mahalo for Paying On Time

 

Why it matters: Your payment history speaks volumes, comprising a whopping 35 percent of your credit score. Even the smallest slip-ups can send ripples through your financial standing. How to boost your score: Always make at least the minimum payment by the due date. Set up handy payment reminders and automatic payments to keep your credit ship sailing smoothly. And don't forget to give your credit reports a little aloha by checking them annually and fixing any inaccuracies.

 

2. Keep Those Balances Balanced

 

Why it matters: The amount of credit you're using, aka your credit utilization rate, is the second most critical factor in your credit score. High balances could signal choppy financial waters ahead. How to boost your score: While having credit cards isn't a wave you should avoid, it's essential to keep your debt manageable. Aim to pay your credit card bills in full every month, or at least keep your balance below 30 percent of your credit limit. And remember, understanding the ebb and flow of credit limits is key.

 

3. Old is Gold: Don't Close Those Accounts

 

Why it matters: Your credit score considers the age of your accounts, with a longer history usually signaling a higher score. Closing old accounts could sink your average account age. How to boost your score: Keep those vintage credit cards active, even if you're not using them for major purchases. Consider using them for small, recurring expenses like your favorite streaming service. Oh, and think twice before riding the wave of new accounts—they might lower your average age.

 

4. Mix It Up with Loans

 

Why it matters: Lenders like to see a diverse portfolio of loans, showing you can handle different financial responsibilities. How to boost your score: While not the biggest factor, having a mix of credit cards and installment loans (like mortgages and auto loans) can give your score a boost. Just be mindful not to take on unnecessary debt just for the sake of variety.

 

5. Join the Ohana: Become an Authorized User

 

Why it matters: You can piggyback off the credit history of a trusted family member or friend by joining their credit card account as an authorized user. How to boost your score: Choose someone whose credit you admire and work with them to use the card responsibly. Remember, they're ultimately responsible for the balance, so it's all about trust and teamwork.