Good credit can open many doors in life. Whether you apply for a mortgage or a cell phone contract, your credit score can be a deciding factor. Generally, the higher your score, the better your chances at getting approved for a loan or credit card.
Before you get started, keep in mind that your score will not change overnight. It can take months for it to reflect the positive changes you make and everyone’s situation is different.
Here are some tips to improve your credit score:
1. Check your credit reports
The first action you can take is to request a free copy of your credit report. By federal law, all three major credit bureaus must provide a free copy to consumers once every 12 months upon request.1 You can download your free credit reports online or have paper copies mailed to your address.
Once you have your reports, check for credit errors. A mistake or inaccuracy can have a negative effect on your score, so take your time and be thorough. Verify the following basic information is correct before reviewing the specifics of each account:
- Social security number
- Marital status
- Employer history
If you find a mistake, dispute the credit report error immediately.
2. Pay your bills on time
Payment history is a significant factor for most credit scoring models.2 With that in mind, paying your bills on time can be one of the best ways to maintain and raise your credit score.
One way to help ensure your bills are paid on time is to set up automatic payments for each account. If automatic payments aren’t available, you could write down all your due dates on a calendar and cross them off after you pay them. If you prefer to use your mobile phone for organizing personal tasks, set calendar alerts to remind you of upcoming due dates.
3. Evaluate your credit utilization
Another big factor of your score is credit utilization.3 Credit utilization is the sum of all your balances divided by your total credit limit. For example, if you have $10,000 of available credit and your balances total $4,000, your utilization is 40%.
Lower utilization rates typically impact your score positively, with most scoring models giving you a higher score for a utilization rate of 30% or lower.4 If your ratio is above 30%, consider the following suggestions to help get your rate within the recommended range:
- Confirm your balances and total credit limit once a week
- Set up balance alerts to warn of overspending
- Make more than one payment per month
- Distribute payments evenly over all accounts
4. Keep old accounts open
Similar to your employment history on a job application, your old credit accounts can represent your past reliability to the credit bureaus. Although closing old accounts may not impact everyone’s credit rating the same way, the outcome can be negative under certain circumstances.
Possible outcomes may include:
Increased credit utilization rate: When you close a credit account, you reduce your overall available credit. For instance, if you close an old account with $2,000 of available credit, the $10,000 of total available credit you once had would reduce to $8,000. This could increase your utilization rate and lower your score.
Decreased average age of account: Some credit scoring models reward you for having an older average age of credit.5 Although the average age of your credit isn’t typically the strongest factor, closing your oldest account could drop your credit score.6
5. Don’t apply for too much new credit
Opening up new credit accounts can have a dual effect on your credit score. On one hand, you’re increasing your overall credit limit, which is a positive factor. On the other hand, each application for new credit can trigger a certain type of review called a hard inquiry. A hard inquiry can be negative factor, the solution—don’t apply for a lot of new credit in a short period of time.
In addition to your score dropping, too many hard inquiries at once can be a red flag for lenders. They may view your actions as a plan to take on a lot of new debt. So, if you intend to apply for new credit, which can lift your score, try to spread out your applications.
Building up your credit score is possible, but it takes time. A good approach is to make smart choices, check your credit scores regularly and stay committed. Over time, your hard work should pay off.
1. Annualcreditreport.com. “About this site.” Annualcreditreport.com. https://www.annualcreditreport.com/aboutThisSite.action (accessed June 17, 2019).
2. Federal Trade Commission. “Credit Scores.” FTC.gov. https://www.consumer.ftc.gov/articles/0152-credit-scores (accessed June 17, 2019).
3. Irby, Latoya. “Understanding Credit Utilization.” Thebalance.com. https://www.thebalance.com/understanding-credit-utilization-960451 (accessed June 17, 2019).
4. Irby, Latoya. “What Is a Good Credit Utilization Ratio?.” Thebalance.com. https://www.thebalance.com/what-is-a-good-credit-utilization-ratio-960548 (accessed June 17, 2019).
5. Brozic, Jennifer. “How does age of credit history affect credit scores?” Creditkarma.com. https://www.creditkarma.com/advice/i/age-credit-history-affect-credit-scores/ (accessed June 17, 2019).
6. Brozic, Jennifer. “How does age of credit history affect credit scores?” Creditkarma.com.
*This article has been updated from its original posting on October 19, 2016.