Mastering Money: Proven Strategies to Boost Credit

Credit plays a powerful role in shaping our financial futures. It can either open doors or create obstacles. My mother instilled in me the importance of managing credit wisely, and since the age of 18, I’ve made it a priority to build and maintain a strong credit profile. By the time I was 29, I was able to purchase my first home; an achievement made possible through strategic financial planning. Along the way, I learned key strategies that helped me build credit and reduce debt such as diversifying credit accounts, enrolling in credit-boosting programs, and negotiating balances that I’m excited to share with you. 

Don’t Use a HELOC to Consolidate Your Credit Card Debt 

Yes, you read that correctly. While many loan officers may encourage you to take out a second mortgage, often referred to as a Home Equity Line of Credit, think twice before going down that road. Credit card debt is considered unsecured debt because it’s not tied to an asset. Once you roll your credit card debt into your house, that debt becomes something you must pay off. Requesting loan forgiveness will not be possible if you choose or need to file for bankruptcy.

Suppose you have $50,000 in credit card debt at a high interest rate, and you decide to consolidate it into a HELOC. Once you do this, this debt is no longer eligible to be discharged or restructured in bankruptcy court; you must repay it if you want to keep your home. In contrast, if you had left the debt on your credit cards and filed for Chapter 7 or 13 bankruptcy, the court might have allowed you to restructure this debt or discharge it entirely.  

Diversify Your Credit Accounts

Having a variety of credit accounts can help you establish a stronger credit score. After all, having a credit mix accounts for roughly 10% of your credit score. This means that if you have more than just credit cards, such as a mortgage, car loan, or other installment loans, you are demonstrating your ability to manage different types of credit. Credit cards are unsecured debts, while mortgages, vehicle loans, and jewelry loans are secured and tied to an asset. I’m not suggesting taking out a loan for the sake of diversifying your credit. Understanding how different types impact your credit score can help you make informed decisions about your finances and alert you to what credit bureaus look for in your credit portfolio.   

Enroll in Programs like UltraFICO and Experian Boost 

Before running your credit to purchase a car or a home, you may want to enroll in UltraFICO and Experian Boost. These two programs are free, offer the flexibility to opt-in or opt-out anytime, and may boost your score by an additional 10 to 15 points within 72 hours.  

Negotiate Your Balances 

If you are concerned that you will no longer be able to make your personal loan or credit card payments, let your lender know ahead of time before it goes into collections. Allowing debts to go into collections can dramatically lower your credit score by as much as 40 to 120 points! Additionally, once collections own your debt, you will begin receiving calls and notices demanding payment, which can become highly stressful and annoying. Instead, consider negotiating your debt. 

Before making the call to your lender, have your information available including your loan number, debt balance, and your budget. While you may have fallen behind with bills mounting up, it is important to know exactly where your money is going. Contact your lender and let them know you can no longer make payments, ask for options, and get everything in writing. Lenders may forgive the entire debt. More likely, they will work with you and provide you with a payment plan. Again, be sure to get it in writing.  

Let’s say that you owe $10,000 in credit card debt. You’ve been making payments, but due to an emergency (e.g., disability, job loss, etc.) you realize you can no longer make the payments. The lender may forgive a portion of the debt; let’s say $5,00, but tell you to pay the remaining debt over the next 24 months. It is your responsibility to pay the remaining $5,000 and receive the agreement in writing because you don’t want them, or a collections agency saying you still owe the other $5,000.  

Keep in mind, whenever a lender forgives a portion or all of a loan totaling more than $600, it is considered income and you will have to file a 1099-C with your taxes.   

Rebuilding your credit is entirely within your reach. It takes time, patience, and informed decision-making. You have the power to negotiate your balances, leverage helpful resources, and enjoy the long-term benefits of a strong credit score. Always consult a financial professional when needed and never sign a loan agreement you don’t fully understand. Most importantly, avoid taking on new debt solely to improve your credit. Smart, intentional steps today can lead to lasting financial stability tomorrow. 

Samuel Molina is an Accredited Financial Counselor® and CEO and Founder of The Academy of Financial Education, a non-profit organization dedicated to narrowing the wealth gap for its community through activities, coaching, education, and instruction. Visit Samuel’s FindAnAFC profile to view his services and connect with him on LinkedIn.