Improving your credit score can seem like a daunting task, but it’s a crucial step towards financial freedom and flexibility. Whether you’re looking to buy a house, finance a car, or simply want better rates on credit cards, a higher credit score can open many doors.
Let’s explore seven strategies to boost your credit score, backed by facts and figures that underscore their importance.
1. Check Your Credit Report for Errors
Your credit score is based on the information in your credit report. Errors in this report can negatively impact your score.
It’s advisable to regularly review your credit reports from the three major credit bureaus—Equifax, Experian, and TransUnion. You’re entitled to a free report from each bureau once per year through AnnualCreditReport.com.
Tips:
- Request your credit reports.
- Carefully review them for discrepancies such as incorrect personal information, mistaken or fraudulent accounts, and outdated information.
- Dispute any errors you find with the respective credit bureau.
2. Pay Your Bills on Time
Payment history is the most significant factor affecting your credit score, accounting for about 35% of your FICO Score. Late payments can stay on your credit report for up to seven years.
Tips:
- Set up reminders for due dates or, better yet, automate your payments.
- If you’re behind on any payments, catch up as soon as possible. The longer a bill goes unpaid, the more it hurts your credit score.
3. Reduce Your Credit Utilization Ratio
Your credit utilization ratio—the percentage of your credit limit that you’re using—is another critical factor in credit scoring, making up about 30% of your FICO Score. Experts recommend keeping your utilization below 30%, and lower is even better.
Tips:
- Pay down balances to lower your utilization.
- Request higher credit limits (but don’t increase your spending).
- Consider spreading your charges across multiple cards to keep the ratio low on each card.
4. Leave Old Accounts Open
The length of your credit history accounts for about 15% of your FICO Score. A common mistake people make is closing old credit accounts. Closing these accounts can decrease the average age of your accounts and negatively impact your score.
Tips:
- Keep old credit cards open, even if you’re not using them frequently.
- Use these older cards occasionally to keep them active, which can also help your score.
5. Mix It Up: Diversify Your Credit Types
Credit mix—having different types of credit such as revolving credit (credit cards) and installment loans (auto loans, personal loans, mortgages)—accounts for about 10% of your credit score. Having a variety of credit types can positively affect your score.
Tips:
- If it makes financial sense, consider diversifying your credit with a well-managed installment loan or a new credit card.
- Always ensure that taking on more credit is justifiable and manageable within your budget.
6. Limit New Credit Inquiries
Every time you apply for credit, a hard inquiry is made, which can lower your score slightly. These inquiries can add up and have a more significant impact if there are many in a short period.
Tips:
- Only apply for new credit when necessary.
- Be strategic about timing your credit applications, especially if you’re planning a major purchase like a home or car.
7. Consider Tools Like Experian Boost
New tools like Experian Boost allow you to add utility and telecom bill payments to your credit file. These typically aren’t reported to the credit bureaus but can count toward your credit score when included.
Tips:
- Sign up for Experian Boost and connect your bank accounts to the service.
- Ensure that your utility and telecom payments are consistent and on time.