Tips to Improve Your Credit Score

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 higher your chances at getting approved.

If you’re looking to raise your score, keep in mind that it will not change overnight. It may take months for your credit score to reflect the positive changes you make, so it’s important to start early to see results sooner.

Here are some tips to improve your credit score:

Check your credit report

The first action you can take is to request a free copy of your credit report. Once every 12 months, upon request, all three major credit bureaus should provide a free copy to consumers¹. You can download your free credit reports online or have paper copies mailed to your address.

Once you have your reports, begin checking for 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:

Name
Address
Social security number
Marital status
Employer history

If you do find a mistake, you can dispute the error on your credit report immediately.

Pay your bills on time

Payment history can be a significant factor for most rating scales². With that in mind, you may want to place more emphasis on paying your bills on time. A strong history of bill payments could show potential lenders you are a reliable borrower.

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, another suggestion is to 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.

Evaluate your credit utilization

Another big factor of your credit score (30%) is your credit utilization³. Credit utilization is the sum of all your balances divided by your total credit limit⁴. 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, unless your utilization rate is 0%. Additionally, research by Credit Karma shows the average credit score of a person with 1-20% utilization is higher than those with 0%⁵.

Most scoring models encourage a utilization rate of 1%-40%⁶ to make a positive impact on your score. If your ratio is above 40%, consider the following suggestions to help get your rate within the recommended range:

Check all your balances once a week
Set up balance alerts to warn of overspending
Make more than one payment per month
Distribute spend evenly over your accounts

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 score in 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 a $2,000 credit line, the $10,000 of total available credit you once had would reduce to $8,000. This could increase your utilization rate which could lower your score.
Decreased average age of accounts - Some credit scoring models simply use your oldest and newest accounts to determine the average age of your credit⁷. With that in mind, closing your oldest account could significantly reduce your average age and drop your credit score.

Become an authorized user

One straightforward way to potentially raise your credit score⁸ is to become an authorized user on someone else’s account. To become an authorized user, a primary account holder must agree to add you to their credit account. Once added, the activity of that credit account will be reflected in your credit score.

For the best possible outcome, you can consider asking someone you trust who has a healthy credit score. Also, keep in mind that all activity on the account will be reflected in your score, good or bad.

Be patient

When it comes to improving your credit, stay committed and be patient. Building up your credit score could take some time. Once you start seeing the positive effects, you might be motivated to reach even higher than you originally planned.

¹https://www.annualcreditreport.com/yourRights.action
²https://www.creditkarma.com/article/late-payments-affect-credit-score
³https://www.nerdwallet.com/blog/finance/how-is-credit-utilization-ratio-calculated/
⁴http://www.military.com/money/personal-finance/credit-debt-management/what-should-your-credit-utilization-be.html
⁵http://www.investopedia.com/ask/answers/102814/what-good-credit-utilization-ratio.asp
⁶https://www.creditkarma.com/article/CreditCardUtilizationAndScore
⁷http://www.creditcards.com/credit-card-news/average-credit-account-age-fico-score-1586.php
⁸https://www.creditkarma.com/article/how-being-an-authorized-user-affects-credit