My credit score has dropped below 700, what do I need to stop doing right away to improve my credit score?

Ralph Estep Jr.:
00:00

Have you ever wondered why your credit score seems to fluctuate for no reason? Have you been asking, what causes your credit score to go up or down? Well, stay tuned because today, we're going to dive into the factors that impact your credit score and some simple steps you can take to get it back above 700 points.

Ralph Estep Jr.:
00:23

Welcome to another episode of the Ask Ralph show, where we tackle your personal financial questions from a Christian perspective. I'm your host, Ralph, and today we're talking about an important topic. And that's how to boost your credit score. Yesterday, we talked about online banking and some great apps to use. If you missed that show, don't worry about it. Just head over to askralphpodcast.com and check it out. You'll find all of our episodes right there on that website.

Ralph Estep Jr.:
00:51

I recently received an email from Craig, and he wrote this. "Dear Ralph, I was shocked when I checked my credit score last month and saw the drop below 700 points. I always thought I was doing everything right. I was paying my bills on time, not taking too much debt, but apparently, I was missing something. Can you please share what I might be doing wrong and how can I improve my score quickly? Any creative ideas will be appreciated. Thank you." Well, Craig, thank you for writing in. Many people see unexpected dips in their credit scores now and then. The good news is there are definite steps you can take to boost it back over 700. And we're going to be covering those today.

Ralph Estep Jr.:
01:34

But first, let's start with a Bible verse about finances from the book of Hebrews. This is from chapter 13, verse 5, and it says, "Keep your life free from the love of money, and be content with what you have, for he has said, 'I will never leave you nor forsake you.'" Do you ever feel discontent? Like you need more money or credit when your score drops? This verse reminds us that with God by our side, we can be content even through those financial struggles.

Ralph Estep Jr.:
02:03

So now, let's dive in today's topic and that's how to boost your credit score above 700 points quickly. Let's start with a basic question. What causes your credit score to drop unexpectedly? There really are a few key factors. The first one is this. High credit utilization ratio. This means you're using too much of your available credit. Experts recommend keeping it below 30% so you don't max out your credit cards. You got to keep those balances low compared to your limit.

Ralph Estep Jr.:
02:34

Number 2. Late payments. Payment history is by far the biggest factor affecting your credit score. If you paid late on any credit account, your score's going to drop. So always pay at least the minimum amount due by the due date. This is where I highly recommend setting up automatic payments for at least the minimum required payment to avoid any late payments whatsoever. You can always make extra payments from time to time, but setting up automatic payments will ensure that you're never late.

Ralph Estep Jr.:
03:03

Let's look at number 3. And that's hard credit inquiries. Every time you apply for new credit, the inquiry causes a small temporary drop on your score. So always apply selectively for new loans. You have to think strategically on this. When I used to make the lending decisions for our credit union, I would really examine applications where someone was looking for credit in all kinds of directions. It normally meant there was some underlying issue or credit crunch or cash crunch. That's why the scoring models react negatively to those inquiries.

Ralph Estep Jr.:
03:37

So here's my first pro tip. A chief culprit of this is auto shopping. So I always recommend heading to your bank or your credit union prior to shopping to get your loan pre-approval. Don't let the auto dealerships run your credit multiple times when car shopping. That's a real pro tip. You also probably get better rates and avoid the finance office shakedowns. It drives auto dealers crazy because that's really a huge profit center for them. I talked about that in a previous episode.

Ralph Estep Jr.:
04:05

Let's look at number 4. And that's inaccurate information. Errors on your credit report, like accounts that aren't yours or incorrectly reported info can lower your score. So it's time to dispute those errors. Make a habit of routinely checking your credit report.

Ralph Estep Jr.:
04:20

So here's another pro tip. I really recommend using a service that actively monitors your credit for changes. I personally use Norton. I think it's called Norton 360, and it sends me multiple alerts and also sends some real identity theft protection. It alerts me of any new credit inquiries. And when accounts are added to my record, I get an email and a text. It's been a real-life changer for me.

Ralph Estep Jr.:
04:43

And finally number 5. Changes in credit. Closing accounts or having high balances that are higher than usual can impact your score. Try to keep your credit stable. Trust me, as a former credit union exec, I always wanted stability in borrowers and the scoring models reflect that desire for stability.

Ralph Estep Jr.:
05:03

The truth is, when lenders see blood in the water, they look more closely and oftentimes are reluctant to grant new loans. It'll also end up costing you more because most lenders use the score to determine the interest rate. That's what they call risk-based lending. And it's very effective. But it does end up costing those with lower credit scores more for the same loan as those with higher scores.

Ralph Estep Jr.:
05:25

So the next logical question is this. How can you start improving your credit score quickly? Now I say quickly, but this is not a sprint. So here are some impactful yet creative tips. You can consider becoming an authorized user on someone else's credit card if they have a strong payment history. Their good credit can boost yours but be careful not to take on debt.

Ralph Estep Jr.:
05:48

Generally, an authorized user will report as positive on your credit report, but before you make this choice, be sure that the person you're aligning with has a great credit history and understands what we're discussing here today. Just imagine becoming an authorized user with a goal of improving your credit and getting sucked down a lower because of their poor decisions. So make sure they listen to this episode first.

Ralph Estep Jr.:
06:09

So here's another pro tip. Request credit limit increases on current cards to lower your utilization ratio. Now don't use this as a time to go spend more. Don't take the added availability as a sign to spend more and run up that credit card.

Ralph Estep Jr.:
06:27

Another critical tip is to pay down balances as aggressively as possible. It's time to knock down that debt. Transfer balances to a 0% interest card may help you pay faster too. Consider the debt snowball or the avalanche method. We talked about that in prior shows. The goal is to get those balances down.

Ralph Estep Jr.:
06:45

But as I said before, don't close those accounts because that could actually reduce your credit score. So get them paid down, keep the accounts open and over time, maybe closing them down if you're not using. And as I mentioned earlier, set up automatic payments on all bills to avoid ever paying late. It's time to automate everything for at least the minimum payments, but now go back and look at those things. And if you've got extra money, pay extra.

Ralph Estep Jr.:
07:09

And here's another big one. Only use credit cards lightly and do what we call cycle credit by letting the statement balance posts, and then paying it off in full. This shows responsible usage and really does build credit stability. And like I talked about a few minutes ago, it's vital that you dispute any errors on your credit reports. Continue monitoring closely.

Ralph Estep Jr.:
07:29

Fixing mistakes can provide a nice score bump. I remember a few years back when we were refinancing our mortgage, we found something on our credit. And we actually disputed it and we did something where they could go out and rerun the credit to get a new score we had. I think it was called rescoring. So that really is a big thing.

Ralph Estep Jr.:
07:45

And the final tip. Consider adding new types of credit by taking out small installment loans from your credit union and paying diligently. This shows you can handle different types of credit. Again, when I was making lending decisions, I loved seeing a borrower with a good mix of credit sources. I even encouraged my loan officer to look for opportunities to offer borrowers other lending options when applying for a loan.

Ralph Estep Jr.:
08:06

If they're applying for an auto loan and had a great credit card history, I will give them a new credit card with our credit union. It was all about building that relationship with someone who honored their credit. You should look to build those relationships as well. So when you need a loan, you already have a proven track record with that lender.

Ralph Estep Jr.:
08:23

With a mix of these strategies, fixing credit mistakes, optimizing your credit accounts, improving payment habits and being selective about your new credit, you should see your score start creeping back to within 700 within a few months. It's not going to happen overnight, but within a few months, it should. The key is staying diligent, keeping debt low, never missing payments, and giving it time. With God's wisdom and a little financial discipline, a good credit score is within your reach.

Ralph Estep Jr.:
08:52

So to quickly summarize today's show, we talked about the reason your credit score might unexpectedly drop. Like high utilization, late payments, credit inquiries and inaccurate information. We shared some creative tips for boosting your score back up, like becoming an authorized user, requesting higher credit limits, but again, don't run up those balances. Aggressively paying down balances, automating payments, disputing errors, and selectively adding new types of credit. The key to this is continuing to monitor your credit, dispute any mistakes, keep your debt low and your score should improve. Craig, I sure hope this gives you a game plan. Please keep me posted on your progress.

Ralph Estep Jr.:
09:33

If you found today's credit score tips useful, be sure to visit our website at askralphpodcast.com. You can join our email list to get my free book. This is it right here. Mastering your finances. You also get notification of our new episodes and this book's going to come to you free just by signing up for our list. So feel free to send any personal finance questions you have as well. I love answering your questions. This is my mission field. And I want to help you improve your finances from a Christian perspective.

Ralph Estep Jr.:
10:01

And remember to share this episode with others who may be looking to boost their credit score. When we support each other on the journey to financial freedom, we will all succeed together. Stay tuned tomorrow. We'll be discussing the secure act 2.0, how it affects your taxes, how it affects your retirement accounts and more. That's one you don't want to miss. Until then. Here's what I want you to do. Stay financially savvy, and God bless. Thank you for listening to The Ask Ralph Show. We'll talk again soon, my friends.