Improving their credit score is a goal for many Texans, but it can be daunting if you don’t know where to start. Whether you are establishing credit for the first time, recovering from questionable financial decision-making, or have had to take on more debt than you can handle, there are ways to put yourself on the right path. While everybody’s situation is different, you want to have the best credit score possible to keep your financial options open and keep money in your pocket.
A credit score not only signals your risk level to potential lenders; it can be seen as an overall indicator of financial health. For that reason, having a good credit score can give you the peace of mind that you’re making wise and thoughtful financial decisions. However, there are other, more concrete reasons to want to improve your credit score, and quickly.
Lenders compete for stable and responsible borrowers by offering lower interest rates. Acquiring a low interest rate pays big dividends on the back end, especially for major purchases. While a 1% decrease might not seem like a lot, if that reduction is on a $400,000 home, the savings would be over $90,000 across the life of the loan. This can help you afford the home you want in the area you desire, whether that be Houston, Austin, or something more rural. To see how much these lower interest rates can save, Moody Bank offers easy-to-use financial calculators.
Whether it be to buy a home, start a business, or purchase a vehicle, you’ll want to have the borrowing power that you need. Lenders will frequently cap the amount they are willing to lend to those with fair, poor, or no credit scores. A good credit score will ensure that all your borrowing options are open to you.
As your credit score improves, you may find yourself “pre-approved” for a variety of credit cards. Some of these cards come with benefits such as cash back, travel rewards, dining points, and other perks. However, these are normally reserved for borrowers with good to excellent credit. Additionally, you will also qualify for higher credit limits. This can lead to an even further increase in your credit score, as ample credit is seen as a positive sign by credit bureaus and lenders.
Credit bureaus use two main formulas to determine your credit score: FICO and VantageScore. Essentially, both formulas use the same categories to calculate your score, though the categories are weighted differently. FICO is much more common, and therefore more likely to be the number your lender will look for. Here’s what the FICO formula looks for, and how much effect it has on your score:
Once a credit bureau uses FICO to determine your credit score, it will fall into one of the following ranges:
If you have credit score below 580, or if you want to position yourself for a better interest rate on a mortgage, HELOC, or car loan, then you’ll want to take some steps to improve your credit score. Below are some ways to quickly see a rise in your score.
Credit utilization refers to the ratio of revolving credit you are using to your total credit limit. You want your credit utilization under 30%, but for maximum credit increases, it should be in single digits. Credit utilization is calculated by credit cards and other personal lines of credit. Loans such as mortgages, student loans, and auto loans don’t count towards this. To lower your credit utilization ratio, consider:
It is also necessary to monitor your spending and keep each individual balance under 30%. “Having 90 percent credit utilization on one of your cards won't reflect well on your score, even if your overall credit utilization is much lower. . .know what your balances are on all your cards and work to keep everything as low as possible,” [one expert] says. If you need further assistance in managing your debt, or want to discuss your options, Moody Bank’s wealth management team can guide you through the process.
Continuing to stay on top of your monthly bills and debt payments will not only establish you as a responsible borrower but can prevent you from overextending your credit. Consider setting up autopay for your bills so that you never miss a payment and make more than the minimum payments required for your credit card debts.
As you pay off your various lines of credit, make sure to keep them open. Keeping old lines of credit available maintains a higher credit limit, which lowers your overall credit utilization. However, many lines of credit—especially credit cards—will close automatically if not used after a period of time. Be sure to make occasional purchases with all your credit cards, even the ones that offer fewer benefits.
Subscribing to credit alerts from the credit bureaus will alert you to both good and bad changes in your credit score. Unfortunately, identity theft and fraud are real problems that could sabotage your credit improvement efforts if not dealt with swiftly. The sooner you spot reporting errors, lines of credit you didn’t open, or fraudulent activity, the sooner you can notify your financial institutions and restore your good credit standing.
Moody Bank has convenient locations in Houston, Austin, New Braunfels, and Galveston. Whether you are looking for new lines of credit, personal loans, or are saving for a major purchase, Moody Bank and its financial professionals are here to help. Stop by or contact us today!
Also check out our blog post, Tips for Meeting Your Financial Goals in 2025 , for more information on finance tips!
