How to Improve Your Credit Score

A good credit score is a necessity. You need it for renting an apartment, financing a car, buying a house and meeting many other financial goals. Learn how to start improving your score and achieving your goals. 

1. Check the Accuracy of Your Credit Reports

The first step in improving your credit score is to be aware of what’s on your credit history. There are three major credit bureaus—Experian, Equifax and TransUnion—and each has its own credit report based on your credit history.

Credit scores are based on these reports, and there are many credit scoring models. That means everyone has potentially dozens of credit scores, though negative information on your credit reports tends to trend all your credit scores downward.

It’s not unusual to find mistakes on a person’s credit report. It’s a good idea to check your scores regularly and dispute any potential errors. This can help bring up your credit score.

2. Increase Your Credit Limits, But Be Careful

High credit utilization can have a large impact on your credit. Increasing your credit limit may help improve your overall score by lowering your credit utilization. A higher limit means you can keep using the same dollar amount of credit but consume a lower percentage of your overall credit allowance.

You have to be careful with this, though. Raising your limits can easily become a detriment to your score instead of a boost. One important consideration is that applying for cards can hurt your score, so if you try to raise your limit by applying for every offer you see, you may do more harm than good. It also doesn’t help if your spending and credit use go up in proportion to your new limit.

3. Try to Add Your Positive Rent and Utilities Payments

One way you might improve your score without taking on any new accounts is by getting your rent and utility payments reported to the credit bureaus. This can help build your payment history without increasing your debt or causing hard inquiries on your credit report.

Most landlords don’t report this information, so you may have to request that they start or use a credit-building program. Solutions such as ExtraCredit® help you self-report timely rent, utility and cell phone payments so you get credit for managing those accounts well.

4. Send in Your Payments When They Are Due

The most important thing you can do when trying to build your credit is make payments on time. Missing a payment can severely hurt your score, and that negative mark sticks with your report for a long time. If you can’t make a payment on time, it’s worth calling the creditor to see if they’re willing to work with you. Sometimes, you may be able to get out of having a late payment reported by being proactive and working within the creditor’s policies.

5. Get Added as an Authorized User

Getting added as an authorized user on the account of a friend or family member with a solid credit history can help raise your credit score. While you don’t actually need to use the other person’s credit or account, their positive credit and payment history are added to your credit reports and make you look better by default.

Note that this only works if the other person manages their credit account wisely. Stick with someone who pays their bills on time and doesn’t run up their credit card balance.

6. Clear Any Outstanding Collection Accounts

You may be able to improve your score by handling old debts. Some creditors might agree to remove negative items from your credit report if you settle debts, though this isn’t super common. Still, a paid collection account looks better for your credit than an outstanding one. Medical collections do come off your credit report once you pay them.

7. Open a Secured Credit Card

This type of card involves you depositing money to secure the line of credit the lender is extending to you. Common credit limits start around $200 or $300, so you don’t need a lot of cash to open such an account. Using the card wisely and making timely payments can help drive up your score.

8. Maintain Revolving Balances

If you carry a large amount of debt in relationship to your available credit, your score can suffer. In fact, credit utilization accounts for 30% of your credit score. So, if your total credit card available credit is $10,000 and you’re currently using $8,000 of it, paying down those balances can increase your score.

Keeping your utilization rate at around 30% is recommended. That’s $3,000 in debt on a $10,000 available limit, for example.

Frequently Asked Questions

Why Does Good Credit Matter?

By improving your credit score, you open up a world of purchasing power. You might no longer need to worry about being approved for that home, vehicle, or other item that lets you take the next step in life. You may also be approved for nicer apartments and lower interest rates.

How Are Credit Scores Calculated?

Your credit score is impacted by activity that shows you may be a risk to lenders. Information about your credit usage is reported to credit bureaus and compiled into an overall score. These are the main things that impact your score:

• Payment history: A history of overdue payments paints you as a bigger risk to creditors. This factor has the greatest negative effect on your credit score, about 35%. 
• Amount of debt: Debt contributes 30% to a FICO score’s calculation and also weighs heavily on other credit scoring models.
• Age of accounts: Creditors like to see a proven record of borrowing, utilizing, and repaying credit. If you’re new to credit and borrowing, there isn’t a whole lot of data to go on. This makes up 15% of your score. 
• Account mix: Lenders want to ensure you can handle both revolving and installment credit. Credit mix accounts for around 10% of your score.
• History of credit applications: Multiple hard inquiries on your credit may look like you’re overextending yourself financially. This will lower your score. Credit inquiries make up 10% of your score. 

How Long Does It Take to Improve Your Credit Score?

Achieving a good credit score may take a long time or only a few months, depending on your credit history and what you’re doing to improve it. Positive changes in your score can often be seen in as little as a month.

How Do You Build Credit If You Don’t Have Credit?

Credit-building loans, secured cards, and reporting monthly bills are all ways you can start to build credit with no score. These options pose little risk to lenders, so as long as you have proof of income, you can usually be approved even with no credit score. 

How Often Should You Check Your Credit Score?

Checking your score with soft inquiries shouldn’t hurt your score. Getting a credit monitoring app lets you check your score as often as you like. It’s probably best to check in at least once a month to ensure there aren’t any unexpected changes. Sudden drops could mean something is wrong and you need to dispute it.

Does Getting a New Card Hurt Your Credit?

Getting a new card may cause a small decrease in your score short-term, but the increase in your credit limit helps long-term. As long as you keep a healthy utilization ratio and make payments on time, a new card should boost your score.

Does Paying Down a Loan or Collections Hurt or Help Your Credit?

Paying down debt can often help your score, but it may also be beneficial to hold on to accounts with positive payment history. Whether you should pay off an account is something to assess on a case-by-case basis.

Improving your credit score is an important part of achieving healthy finances. If you keep working at it and making credit-building moves, your score can improve. And as your credit improves, more opportunities for building credit open up, such as refinancing and higher credit limits.

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