4 Tips to Help Improve Your Credit Score
Wondering how to boost your credit score? Start by addressing these key components.
Your credit score can be a confusing yet important number. It can affect the interest rate on your personal loan, mortgage, car payment, getting approved for an apartment lease, and more.
While there are a wide variety of factors that can impact your credit score over time, some of the most common include:
- Payment history
- Credit usage
- Length of credit history
- New credit
- Credit mix
Thankfully, if your credit score isn’t as high as you’d like, there are ways to give it a boost. Here are a few actions you can take to help improve your credit score and get back on track.
Review Your Credit Report for Mistakes
When strategizing how to improve your credit score, looking at your credit report is a good place to start. You’re entitled to a free credit report from Equifax, Experian, and TransUnion — the three major credit reporting agencies — once a year. You can request a copy of these reports at annualcreditreport.com.
Similar to how you would review personal information on a lease, medical bill, or ID, correcting any legitimate mistakes on your credit report can be a relatively quick and simple way to boost your credit score.
Although this might seem like a long shot, 34% of people in one study found at least one error in their credit report.1 Some of the most common errors individuals caught were:
- The wrong address
- An unrecognized account on their report
- Misspelled name
- Unrecognized debt reported to collections
- Payment wrongly reported as late
Analyze your credit report and look for any errors related to your personal information, payment history, and credit accounts. If you find any legitimate errors, report them to the credit reporting agencies and request to have them fixed. You’ll need to provide supporting documentation to verify any changes that need to be made.
Reduce Your Credit Utilization
After checking your credit report for errors, you may need to look at your credit utilization ratio, or the amount of debt you have as a percentage of the total credit available to you. The amount of debt you owe makes up 30% of your credit score’s calculation, which is the second-most influential factor.
If you’re using a significant portion of the credit available to you, that can signal to lenders that you’re a risky borrower, and it could impact whether they approve your loan application. And, if they do, lenders might give you a higher interest rate than borrowers with less debt.
If you’re trying to improve your credit score, focus on paying down credit cards and any other revolving debts you might have. Ideally, you should aim to use 30% or less of your available credit. If you can, try to get your credit utilization down to 10% or less, which is considered optimal for seeing a credit score increase.2
There are a variety of methods to pay off debt. One way to efficiently reduce your debt is to make more than one payment per month. If possible, use a portion of each paycheck to continually pay off your debt rather than making one larger monthly lump sum.
Another way to reduce your credit utilization rate is to request an increase to your credit limit. This can be risky, however, if you continue to utilize your lines of credit to accrue even more debt. Prior to raising your credit limit, consider how to cap your spending so your expenses don’t rise with your increased limit.
You may also consider using a personal loan to consolidate credit card debt. Not only will this help reduce your credit utilization, but a personal loan will give you one set monthly payment with a definitive repayment date. In the long run, this can help you to stay out of a revolving cycle of debt.
Build Your Credit History
Another factor that can affect your credit score is the length of credit history, which refers to the age of your credit account(s). If you haven’t been able to establish much of a credit history, this can have a negative impact on your credit score, which can make it difficult to get approved for a credit card or loan.
To address this problem, you might consider asking a parent or trusted family member to add you as an authorized user on their credit card account. When on-time payments are made to this account, that can positively reflect not only on the primary account holder, but on you as an authorized user as well. The longer you remain on an account that’s in good standing as an authorized user, the greater chance you’ll see a bump to your own credit score. However, there are potential risks to consider. If the cardholder misses a payment or begins to accrue a significant amount of debt, your personal credit will also take a hit.
Secured credit cards are another option to consider. Unlike a traditional credit card, secured credit cards require a cash deposit when you open the account. This deposit will be equal to your credit limit — this helps reduce risk for the lender, which in turn makes them easier to qualify for. As you build a positive payment history over time, you may find it easier to qualify for an unsecured credit card.
Minimize Hard Credit Checks
When you’re trying to improve your credit score, knowing the difference between a hard credit check vs. soft credit check is important. Hard credit checks can lower your credit score and are triggered by a number of scenarios, including loan applications, credit card applications, apartment rental applications, and more. This is especially important if you’re thinking about buying a home or a car because lowering your score with a hard inquiry might be the difference between getting approved or denied for your loan.
Staying on top of your credit score is an important part of your financial wellness journey. While improving your credit score can take time and effort, it’s an investment that will pay off long-term. By following a monthly budget and making smart credit decisions, you can achieve your financial goals no matter where you’re at today.
Take Control of Your Credit Score
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- ”More Than a Third of Volunteers in a Consumer Reports Study Found Errors in Their Credit Reports,” June 10, 2021, Consumer Reports
- “How to Improve Your Credit Score,” Jan. 2, 2022, Investopedia