8 Tips To Teach You How To Improve Your Credit Score

Your credit score can mean the difference between getting that car loan or mortgage or having your application declined. These 8 tips will show you how to improve your credit score — and your chances.

A good credit score is crucial if you want to purchase a home or get favorable rates on loans and credit cards. Scores over 700 are good while scores above 800 are excellent, though most fall within 600 to 700. There are some significant steps you can take to improve your credit score.

Improving your credit score takes time, but is possible. Follow these tips to see significant improvements over months or years.

Optimize your credit score with these strategies now!

1. Pay Attention To Your Credit Card Balances

improve your credit score credit cards

Improving your credit score starts with paying close attention to your credit card balances. The amount of revolving credit versus the credit you’re using largely determines your credit score. So, aim to keep this percentage as low as possible to boost your credit rating with the optimal percentage being 30% or lower.

Reducing your credit card balances is key. You may also benefit from consolidating multiple balances with a personal loan. But remember, even if you pay your balance in full each month, your utilization ratio may still be high. Why? Because some issuers use the balance printed on your last statement to report to the credit bureau. Therefore, your monthly balance will impact your credit score, even if you pay it all off each month. Fortunately, some credit card companies allow authorized users to make multiple payments within the same month for extra flexibility.

2. Pay Your Bills On Time

improve your credit score pay bills

Maintaining a good credit score requires that you make timely payments every month. While this sounds obvious, many overlook this important point.

Your credit report records your payment history, so be sure to pay your bills on time. Late payments will damage your credit and decrease your score. One late payment won’t necessarily be disastrous, but habitual lateness is an issue. Expect a significant decrease in your score if you continue to make late payments.

Surprisingly, items like library books and unpaid bills can negatively impact your credit. If unpaid balances are turned over to collections, the collections account may be put on your credit report, even if the creditor doesn’t typically report to bureaus.

While saving for major purchases like a car or house is a wise idea, don’t neglect your regular bills. Pay them on time so you can maintain a robust credit profile.

3. Eliminate Unnecessary Credit Card Balances

improve your credit score balances

An unnecessary accumulation of credit cards and associated balances can negatively impact one’s credit score. By consolidating balances onto one credit card with the lowest interest rate, you can improve your credit score.

Rather than dividing small charges across multiple cards, consolidate expenses onto one or two cards used consistently for all charges. Firstly, identify credit cards with smaller balances and pay them off in full. Next, choose one or two cards to retain for future use and close the remaining cards.

Reducing the number of open balances and credit cards can ultimately improve your credit score and overall financial wellbeing.

4. Keep Old Debt On Your Credit Report

improve your credit score old debt

Many people mistakenly believe that old credit on a credit report is bad and attempt to remove it as soon as they pay off their car or home. However, keep in mind that negative items have a detrimental effect on your score and most will disappear from your report after roughly seven years. It’s important to understand the difference between good debt and bad debt. Good debt encompasses any debt that has been paid on time and managed responsibly, ultimately having a positive impact on your score. To increase your credit score, it’s crucial to have a lengthy history of good credit, meaning that you should leave good accounts and old debt on your credit score as long as possible. Furthermore, refrain from closing old accounts if you have a record of timely repayment.

5. Avoid Indicating Risk

improve your credit score avoid risk

Improving your credit score entails avoiding actions that suggest risk, such as missing payments or deviating from consistent charges and repayment amounts. Aim to prevent anything that could cause your card issuer to perceive you as a financially questionable customer, like obtaining cash advances or patronizing businesses that imply potential money stress. For instance, using your credit card at a pawn shop or to pay for the services of a divorce attorney may signal future financial difficulties to your card issuer. Staying attentive to these factors can help keep your credit score on the upswing.

6. Check Your Credit Report for Accuracy

improve your credit score accuracy

If your credit score is lower than expected, it’s wise to scrutinize your credit report for errors. Even those from the credit bureau are not infallible, and mistakes can be significant: in 2012, the Federal Trade Commission discovered that some 20% of consumers had at least one in their credit report. Follow-up studies only reinforced the extent of the issue, with many erroneously assuming their score was accurate despite errors.

Given that credit scores depend entirely on your credit report, accuracy is paramount. Even the slightest misstep can have severe consequences for your score. As each individual has three credit scores – one from each major agency – it’s far more prudent to order from TransUnion, Experian, and Equifax for a more comprehensive view. Fortunately, thanks to the Fair Credit Reporting Act, individuals are entitled to one free report annually from each agency. Credit.com and AnnualCreditReport.com offer easy access to this information.

But why stop there? To better monitor your score, stagger the reports at 4-month intervals: a smart move that won’t cost you a dime. With a careful eye and a bit of planning, you’ll have all the tools to keep your financial standing healthy and your prospects bright.

7. Do All of Your Rate Shopping Quickly

improve your credit score rate shopping

When shopping for car, home or student loans, it’s wise to do your rate exploration quickly. Applying for credit generally causes your score to dip a little, particularly when lenders perform hard inquiries. This dip usually lasts about a year. The reason is that those who apply for multiple loans typically need more credit than those who only apply once.

However, mortgage, student and auto loans are exceptions to this. FICO score, the most commonly used credit score, ignores any inquiries from a window of one month prior to scoring. Older inquiries will only be counted if made within a designated shopping period. This period varies in length depending on the lender’s scoring software, usually 45 days for newer software and 14 days for older software.

8. Be Patient

improve your credit score patience

Improving your credit score requires patience. If you’ll be applying for new credit soon, focus on boosting your score. But if you’re not making a big purchase anytime soon, using credit cards responsibly and paying bills on time will suffice to maintain a good score. Check your credit report if you plan to buy something important within a year to fix any issues.

Although the score given by your bank may differ slightly from the lender’s score, it’s a good indication of your credit management. Identify the factors that restricted your score and improve those areas to raise your credit score.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, if you’re denied for credit or don’t qualify for the best rate, lenders must show you the score they used.

To boost your credit score and prepare for that big purchase, follow these tips for building credit for a year or a few months. You’ll definitely see a considerable improvement. Contact myFICO to learn more about how to monitor and improve your credit score.

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