Dealing with your credit score is necessary to participate in our financial system in the U.S. It determines how much you’ll pay for loans and credit cards, what mortgage rate you qualify for, and what kind of deposits you need to pay for utilities. A good credit score can save you tens of thousands of dollars over your lifetime. Employers also may review your credit as part of a background check.
Keep positive if your credit score is lower than you’d like. There are proven strategies that can help improve your score over time. Here are ten tips for giving your credit score a boost:
Pay all bills on time. Payment history is the most significant factor affecting your score. Even one late payment can cause a considerable drop.
Keep credit card balances low. Your debt-to-credit ratio (also known as your “credit utilization rate”) affects your credit score continuously. So what’s a “good” debt-to-credit ratio, and how is it calculated?
From Equifax: “You can determine your debt-to-credit ratio by dividing the total amount of credit available to you, across all your revolving accounts, by the total amount of debt on those accounts.” Experts recommend keeping your balance below 30% of your total credit limit. Higher balances can hurt your utilization ratio.
Don’t close unused credit cards, as closing them can increase your credit utilization ratio. It’s better to keep paid-off accounts open. If you want to cancel some credit cards to streamline your finances, consider canceling cards that you acquired more recently and keeping the older ones to reduce the impact on your credit score.
Mix it up. Having both installment loans (e.g., mortgage, auto) and revolving credit (credit cards) is better for your score. From Experian, “If you don’t have an installment loan and only have credit cards, consider opening a small personal loan or other types of secured loan. This will demonstrate your ability to manage different types of credit.”
Increase credit limits. You can ask issuers to raise limits on existing credit cards. Higher limits with the same balance will lower utilization if you don’t spend.
Check your credit reports. Get free annual reports and dispute any errors that could unfairly impact your score.
Become an authorized user. Adding your name to a family member’s long-standing, well-managed card can improve your payment history. This technique is an excellent way for teens to build credit before they can apply for a card independently.
Avoid frequent applications. Each credit score application can lead to a hard inquiry, temporarily dropping your score a few points.
Be patient. While missteps take time to fade, good credit behavior gets rewarded over several months of responsible use.
Improving your credit score is a marathon, not a sprint. Remember that a high credit score is not the same as being financially healthy. It’s only one factor in your financial life. However, diligently following guidance like this can pay dividends by allowing you to access better interest rates and loans, saving you money, and maybe even that dream job.
