What are some of the best ways to improve my credit score?
Credit scores aren’t written in stone; they’re a snapshot of your credit file at the time the score is requested. Your credit score can go up or down (or stay the same) as your credit file is updated with new information. So, if you currently have a low score, it doesn’t mean it has to stay low forever. On the flip side, if you have a high score, it doesn’t mean you can stop being responsible with your credit!
Some individuals may have a poor – or even non-existent – credit score because they simply do not have an established credit history, and this is completely normal – especially for high school and college students. Other times, an individual may have misused credit in the past (such as racking up a big credit card bill and never paying) and their credit score suffered as a result.
In either case, it’s important to know how to improve your credit score. Below are some of the best ways to improve your credit score, along with tips to help maintain a good credit score once you have one.
The Golden Rule of good credit scores: Always pay your bills on time!
Tip: Set up automatic bill pay when possible to ensure you don’t forget to pay your bills – plus it saves you time. You can also set a recurring reminder on your phone in advance of the due date to ensure you make your payments on time.
Keep utilization low on credit cards and other revolving credit.
Utilization is the amount of credit being used compared to the maximum amount allowed, and it accounts for 30% of your credit score.
Tip: Make it a rule to never have more than 25% of your credit limit in use on any one card. To help manage this, some credit card providers allow you to set alerts when a certain amount of credit is being used.
Request an increase in your credit limit.
If you are responsible with your credit card and maintain a low balance but still want to improve your credit score, you can ask for an increase on your credit limit. When you increase your credit limit but continue to spend the same (or less) as you did before, you will improve your utilization ratio.
Establish credit early.
Starting to build your credit history early – while in high school and college – will help in the long run as length of credit history accounts for 15% of your total score.
Tip: Parents who want to help their children establish credit can cosign a loan with them and ensure they make their payments on time. Adding a child as an authorized user to a credit card – even if they aren’t using it – can also help.
Re-establish your credit history if you’ve had problems in the past.
Negative items typically fall off your credit report after seven years (10 in the case of bankruptcy), leaving you a clean slate with which to re-establish a healthy credit history.
Have a range of well-maintained credit types.
A mixture of credit types, such as a credit card, car loan, and student loan, that are well maintained with good payment history helps to show lenders that you’re financially responsible.
Tip: Don’t take on debt that you don’t need just to increase your credit score.
Pay down existing debt.
Your credit score takes into account the amount owed compared to the original amount borrowed. Paying down your debt will help to improve your score.
Tip: Use unbudgeted money, such as a bonus or tax refund, to make additional payments on your debt.
Shop for a loan within a 45-day window.
Whenever you apply for a loan, there is a hard inquiry on your credit file, which could lower your credit; however, FICO, which is the most common credit score used by credit bureaus, uses a 45-day deduplication window, beginning at the time of the first inquiry. So if you want to shop for a student loan from different lenders, doing so within a 45-day window will result in only one inquiry on your credit file.
Don’t close an old credit card that has a zero balance.
Keeping an old credit card that you don’t use open could actually help your credit score more than closing it. By leaving the card on your file, you are helping to improve your utilization ratio and age of file.
Tip: Recognize your personal situation when making a decision to keep a card open. If you’re trying to clean up your credit and think you might be tempted to irresponsibly use the card, keeping it open might not be the best decision.
Your credit score can constantly change, so be sure to use these tips to enjoy good credit health.