How to Improve your FICO Score with Credit Cards


How would you like to increase your FICO score? The higher your score, the more likely you are to receive loans for things such as a house or a car, but a better score will also get you a better interest rate.

What is a FICO Score?

Check out this informative video on FICO scores:


What is the FICO score breakdown?

As you can see, the most important sections are the amount you owe, and your payment history, followed by the length of your credit history, new credit lines, and the type of credit.

You absolutely need to nail the payment history and keep a low credit balance to achieve a great FICO score.

Credit cards

Wait a minute, I heard that credit cards get people into debt trouble and I shouldn't use them unless I absolutely have to. Isn't that the case?

Actually no. It’s true that if you use credit cards incorrectly and don’t pay them off fully that you will start to pile up debt and have to pay out the nose in interest rates, but that is not the only way to use credit cards.

What not to do with credit cards

What you don't want to do is spend money that you don't have and put those expenses on credit cards. This will result in a monthly rollover of debt that will get higher and higher and you'll end up paying ridiculous amounts of money in interest. This is what credit card companies want you to do, but don't fall for it.

The smart way to use credit cards

Treat your credit cards like a debit card. Pretend that you cannot buy anything with a credit card unless you have the money sitting in your checking account ready to pay it off at the monthly billing date.

Always pay your credit cards off in full

Every month, you should pay your entire credit card bill. If you are treating it as a debit card, this shouldn't be a problem, because you haven't spent money that you don't have.

Set up auto payments

Make sure you never miss a credit card payment, because this will tank your score. Most credit card companies make it easy for you to create automatic payments every month that will pay off your previous statement.

Don't approach your credit card limit

Make sure that you aren't spending more than 25% of your credit limit on any particular credit card. The closer you get to approaching the limit, the worse your FICO score will be.

Have lots of credit cards

One aspect of FICO scores is the number of lines of credit you have. The more accounts, in good standing, the better off you'll be.

Try to space out your acquisition of new credit cards. You don’t want tons of hard pulls on your credit report because this will hurt your score.

Let your credit cards earn you passive income

Most credit cards have perks. This may come in the form of free airline travel miles, free hotel dollars, cash back, etc. Know your credit card benefits and use them accordingly.

For example, I have a Bluecash Everyday credit card from American Express that I buy all my groceries with. The card has a $0 annual fee, and I get 3% back on all my purchases from grocery stores.

I also have a Citi Costco Anywhere credit card, that gives me 4% cash back on gas, and 3% cash back on restaurant purchases, so I buy all my gas and pay for restaurants on this card.

My parents recently got a credit card that gave them 2 free nights at a hotel in Cancun for spending $3,000 in the first 30 days with the new card.

Obviously, you don’t want to spend money you don’t have, but if you were going to spend that money anyway, do it on a credit card that will give you great rewards.

In summary

The point is, I get hundreds of dollars back every year just because I buy things with my credit cards rather than using a debit card. The rewards pay for the cards themselves and then some. It's essentially free money!

Just make sure to do the following and you won’t get in trouble:

  • Pay off your credit cards in full every single month.
  • Don't spend money you don't have!
  • Stay well below your credit limit for each credit card.
  • Use your cards strategically to maximize their unique benefits.
Do these things and you won't ever have to pay interest, you'll make money from buying things you have to buy anyway, and your FICO credit score will improve.
Don't be a sucker for the credit card companies. Let them be a sucker for you!