Whether you’re buying a home, leasing a car or applying for a personal loan, your credit score matters. Lenders check your score—a three-digit number based largely on your bill-paying history and the amount of debt you carry—to determine your creditworthiness.
A high credit score means you will likely qualify for a loan or credit card. A low score, however, can complicate things. A lender may reject your loan or credit application, or offer you a loan or credit card with a higher interest rate.
Fortunately, there are steps you can take to boost your credit score and credit outlook, often within six months or less. Here are some simple ways to improve your credit score.
1
Start by Looking at Your Credit Score
The first step to improving your score is to find out what it is. Three credit bureaus—Equifax, Experian and TransUnion—provide credit checks for most U.S. lenders and insurers, issuing scores on a scale of 300 to 850. The higher your score, the more likely you are to receive loans and credit at competitive rates. Each of these companies calculates scores differently, so your Equifax score may vary slightly from your Experian score. Some banks and credit card companies offer free checks of your credit score, as does Bankrate’s Quizzle, which allows users to track their credit score progress.
2
Study Your Credit Report
Your credit report is not the same thing as your credit score. The details in this report—the accounts you have had, payment history, application history—affect your score. Often, these reports contain incorrect information—listing accounts or applications from someone who shares your name, for example, or failing to note a loan that's been paid off. You are legally entitled to obtain one free credit report annually from each of the three major credit bureaus through AnnualCreditReport.com.
If you spot errors, use the credit report dispute process with the lender or credit bureau in question to clear them up right away. This can be the quickest way to improve your score.
3
Pay Bills on Time, Every Time
Paying your bills on time is the most critical factor for determining a credit score. Ideally, all your bills should be paid before their due date, but that goes double for any credit card or scheduled loan payment. Using online banking monthly Autopay services is a smart way to protect and build your credit score by ensuring you never make a late payment.
4
Keep Your Debt Low
Credit bureaus use something called a credit utilization rate to calculate your score. Credit utilization is calculated by adding all your current credit card and credit line balances and dividing that amount by your total credit limit. So the lower the balance on your credit cards and lines of credit, the lower your utilization rate—which translates to a higher credit score.
Generally speaking, keeping your balances at 30% or less of the total credit limit across all your credit cards is best for your credit score.
5
Pay “Maxed Out” Cards First
Imagine you have $1,500 earmarked to pay your monthly credit card bills. You have two accounts, one with a $1,000 balance and a $5,000 credit limit, and another with a $7,000 credit limit that is maxed out. The smart play, experts say, is to make the minimum payment on the first card and then plunk down a much larger sum on the maxed out card. Why? You will create more available credit othat specific card, which will bump up your credit utilization rate.
6
Make Multiple Payments
Making a second monthly payment after your first is another way to boost your credit score. You don’t need to pay the same amount—it’s really the thought and the additional cash that counts. Every time you reduce your debt, you lower your credit utilization rate and push your score upward.
7
Apply for Credit—But Not Too Often
Lenders generally regard having a few credit cards, a loan or a line of credit as a good thing, provided you make timely payments, of course. Your credit mix—meaning various types of loans, such as credit cards and a mortgage—is a factor in your score. Plus having multiple accounts helps you establish a credit history and sets the foundation for your credit utilization ratio.
But the law of diminishing returns can apply when it comes to applying for credit. That’s because each credit query becomes part of your credit record, and too many “hard inquiries”—that is, applications that are tracked by the credit bureaus—over a short window of time will raise red flags and lower your credit score.
8
Keep Your Credit Cards After You Pay Them Off
Anyone who’s paid off a hefty credit card balance knows the temptation to throw away their card and close their account. But resist that temptation. Your existing credit will help lower your utilization rate, and having your history of regular payments on file shows you can handle credit with grace. As long as the card doesn’t charge a yearly fee, keep it open.
9
Avoid Credit Score Catastrophes
Certain fiscal mishaps can undo your campaign to boost your credit score. Car repossession, delinquent accounts, liens on your property and Chapter 13 bankruptcy will factor into your score for seven years. At the same time, every “hard” credit application will factor into your score for two years. Although the impact of these events diminishes over time—a five-year old lien isn’t weighted as heavily as a lien that started last month—they will nonetheless diminish your score.
10
Be Patient
Your credit score is based on a lifetime of transactions. So it can take time for the impact of late payments, defaults and other mishaps to fade from your score. But persistence, timely payments and fixing any incorrect information on your credit report should have your score moving up in a matter of months.
Seth Kaufman is a journalist and ghostwriter based in Brooklyn, NY. His work has appeared in The New York Times, The New Yorker online and many other publications.
Artwork by Katrin Rodegast.
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