Your credit score can make or break your application for a loan, credit card or, in some cases, an apartment. Having a strong credit score makes it easier to borrow new loans or lines of credit, as well as get approved for better rates and terms. That’s why it’s worth taking steps to boost your credit, whether you’re looking to make a small improvement or start from scratch.
Read on to learn the steps you can take to improve your credit score. But first, a quick overview of how credit scores are calculated:
Whether you have bad credit, no credit or decent credit that could be better, here are some ways you can give your credit score a boost.
1. Get a secured credit card
2. Become an authorized user
3. Review your credit reports
4. Monitor your credit with free tools
5. Pay down debt balances
6. Request a credit limit increase
7. Always pay bills on time
8. Address any debt in collections
9. Mix up your credit
10. Take out a credit-builder loan
11. Maintain your older accounts
12. Use a rental reporting service
13. Negotiate or refinance lower rates on your debt
If you’re starting from square one, it can be tricky to find credit options that are accessible and affordable. With little to no credit history, you’ll have a hard time getting new loans or lines of credit: In other words, you need credit to build credit.
That’s where a secured credit card comes into play. When you open a secured card, you put up a cash deposit as collateral — usually, this deposit will be equal to your credit limit.
It’s easier to qualify for a secured credit card, especially if you keep your balance low and make payments on time. When you use credit responsibly, it should only be a matter of time before you see your credit score rise.
Another way to qualify for credit in your name is to get a shared account — and the easiest way to do that is to get added as an authorized credit card user on someone else’s account.
Ask someone you trust to add you to their credit card account, and it’ll be included on your credit reports. As long as the account is in good standing, it should reflect well on your creditworthiness and help increase your score.
Make sure the original cardholder is responsible with their debts, as any overborrowing or missed payments will hurt both your credit scores.
Credit reporting errors are more common than you might think. According to the Consumer Financial Protection Bureau, complaints about credit reporting increased by 129% from 2019 to 2020.
It’s worthwhile to get copies of your credit reports and review the information on them to catch and dispute credit report errors. Plus, your credit reports often will include insights into factors that affect your credit.
Your free credit reports are helpful, but they don’t include your actual credit score.
Luckily, there are several free credit monitoring tools to help you track your credit score from month to month. Your bank or credit union might offer free credit scores as a benefit of your credit card or bank account.
You can also use a service like LendingTree to check up on your score, track your progress and receive strategies on how to build credit.
Paying your debt ahead of schedule is another borrowing behavior that can positively affect your credit score. If you can afford it, consider making a second (small) monthly payment of whatever extra you can contribute.
Paying down credit card balances, in particular, can help you lower your credit utilization ratio — the percentage of available credit you use — which is a key metric in how credit bureaus calculate your score. Working to prepay loans or other forms of debt also can help when you’re learning how to improve your credit score.
On top of paying down credit card balances, you can ask your credit card issuer to raise your credit limit.
Your credit limit is the total amount you can borrow through the card. The higher it is, the lower any balance you carry will be in comparison.
That makes it easier to keep your credit utilization ratio low — and maintaining a low credit utilization (less than 30% is generally recommended) will keep your credit score trending upward.
Try to check in with your credit card balances throughout the month. If they’ve gotten too high, pay them down before the issuer reports your high credit utilization to the credit bureaus.
You can have decent credit without doing everything right all the time. But it’s nearly impossible to maintain good credit with derogatory marks on your credit report from late payments or delinquent accounts.
That’s why it’s important to pay your bills on time each month. Setting up automatic payments can help you stay on top of all your accounts and due dates.
Having delinquent debt sent to collections is a surefire way to drag down your credit score. Some agencies might even bring you to court to recoup the money you owe.
If you can settle the debt, you might be able to get the collections agency to stop reporting the debt to the credit bureaus. Plus, if you have inaccurate collections accounts on your credit report, you might be able to get them removed.
If you can pay off your debt in collections, your credit score will likely improve.
Your credit mix makes up 10% of your FICO credit score. If you only hold one type of credit, adding another type could improve your score — as long as you pay your bills on time. If you haven’t opened a credit card yet, for example, you could apply for one.
There are a couple of downsides to this approach, however. Applying for a new loan or line of credit typically involves submitting to a hard credit check, which can temporarily ding your score.
What’s more, it’s probably not a good idea to borrow money you don’t need solely for the sake of improving your credit. But if you can make use of the new account — and it won’t cost you too much in interest and fees — then diversifying your credit mix could help improve your score.
Credit builder loans are designed to help you improve credit. These loans often come in a small amount (around $500 to $3,000) and usually charge interest and fees.
The amount you borrow is usually locked in a savings account while you pay it off in monthly installments. Again, the primary purpose of these loans is to help you build a history of positive payments on your credit report, not to cover expenses.
The length of your credit history makes up 15% of your FICO Score. The older your accounts, the more they can help your score (assuming they are in good standing). That’s why it’s typically not a good idea to close old accounts, like an old credit card, even if you’ve switched to using a different one.
As long as you’re not paying an annual fee, it doesn’t hurt to keep an old card around for the sake of maintaining your credit score. If you are paying an annual fee, you could ask the credit card issuer to downgrade to a free version of the card.
Note that you might need to make a payment every once in a while with the card so that the issuer doesn’t close your account.
If you’re a renter, your on-time rent payments could help your score. While rent payments don’t typically impact your credit, you could use a third-party rent reporting service, like Rental Kharma or RentTrack, to send your information to the credit bureaus. There’s also a service called Experian Boost that can report your on-time utility, phone or streaming service payments.
Note that these services will likely cost a fee, which may or may not be worth it.
If you’re dealing with high interest rates on your loans or credit cards, it could be worth seeing if you can lower them. Some companies are open to negotiating a lower rate if you call and ask about it.
Plus, you might be able to refinance a high-interest loan and replace it with a lower-rate one. (Check out our student loan refinancing guide for more information.) Having a lower rate could help you pay off your balance faster, which in turn could improve your credit score.
Credit scores are based on a combination of factors, and there are several types of scores. Two of the most common are VantageScores and FICO Scores. Since lenders tend to rely on FICO Scores, it’s worth understanding how FICO Scores work.
These scores range from 300 to 850 and are based on the following:
- 35% payment history: Whether you’re making on-time payments on your debts.
- 30% amounts owed: The total debt that you owe. Owing a large loan doesn’t necessarily equate to a low score, but having a high credit utilization ratio — using a large amount of the credit that’s available to you — can drag down your score.
- 15% length of credit history: The age of your accounts. A well-established credit history can help your score.
- 10% new credit: Opening lots of new accounts at once can hurt your score, as doing so can lead to lots of hard inquiries on your credit report.
- 10% credit mix: The different types of credit you have, such as credit cards and an installment loan. It’s generally good for your score to have a mix of credit, as it suggests to lenders that you can manage a variety of accounts.
While the steps discussed above can help improve your credit, there are also mistakes you want to avoid that could drag down your score. Here are a few pitfalls to stay away from:
- Don’t apply for a bunch of new credit at once. Even though credit mix makes up part of your scores, you don’t want to accumulate a bunch of hard inquiries, which will ding your score. Plus, if lenders see a flurry of new activity, they might think you’re a risky candidate for additional credit.
- Don’t forget about interest and fees when taking on new credit. If you’re borrowing a credit builder loan to boost credit, for instance, make sure the improvement in your scores will be worth the cost of the loan.
- Don’t carry a balance from month to month on your credit card if you can help it. It’s a myth that carrying a balance will help your score — it’s better to pay off your balance in full every month instead, so you can avoid paying interest.
- Don’t cancel your old credit cards. As discussed above, the age of your accounts factors into your score. Unless you absolutely need to cancel your cards to avoid the temptation of overspending, you’ll be better off keeping old accounts open to maintain your credit history.
Your first financial line of defense against emergencies should be an emergency fund. Having cash on hand to cover urgent expenses can help you avoid debt.
But a good credit score also can act as a lifeline in a time of hardship or financial crisis. If you’ve exhausted your cash and need emergency loans to stay afloat, a positive credit history will grant you access to credit at reasonable interest rates when you need it most.
Avoiding and limiting debt is important, especially in times of financial distress. But knowing you have a good credit score can be an extra layer of financial security. That’s why you should always be mindful of your credit score and be working to improve it.
At the end of the day, find a system that works for you and use it to build good credit (and learn more in this quick credit-raising guide). It takes a while to boost credit, but if you keep taking the right steps, you’ll see a real improvement in your score.
If you owe student loans, check out our report on how your education debt impacts your credit score.
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