How to increase your credit score?
Sample Titles: Top Hidden tricks to increase your credit score
Your credit score is one of the most important measures of your financial health. It tells lenders at a glance how responsibly you use credit. The better your score, the easier you will find it to be approved for new loans or new lines of credit. A higher credit score can also open the door to the lowest available interest rates when you borrow.
If you would like to improve your credit score, there are a number of simple things that you can do. It takes a bit of effort and, of course, some time. Here’s a step-by-step guide to achieving a better credit score.
Why Does a Good Credit Score Matter?
A good or excellent credit score will save most people hundreds of thousands of dollars over the course of their lifetime. Someone with excellent credit gets better rates on mortgages, auto loans, and everything that involves financing. Individuals with better credit ratings are considered lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and perks. Conversely, those with poor credit ratings are considered higher-risk borrowers, with fewer lenders competing for them and more businesses getting away with criminally high annual percentage rates (APRs) because of it. Additionally, a poor credit score can affect your ability to find rental housing, rent a car, and even get life insurance because your credit score affects your insurance score.
1. Review Your Credit Reports
To improve your credit, it helps to know what might be working in your favor (or against you). That’s where checking your credit history comes in.
Pull a copy of your credit report from each of the three major national credit bureaus: Equifax, Experian, and TransUnion. You can do that for free once a year through the official AnnualCreditReport.com website. Then, review each report to see what’s helping or hurting your score.
Factors that contribute to a higher credit score include a history of on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments, high credit card balances, collections, and judgments are major credit score detractors.
How often should you check your credit score?
You should check your credit score regularly to check for errors, but make sure that you are doing so through soft inquiries so that your score isn’t dinged. Many banks offer free credit monitoring to their customers; check with yours to see if you can enroll in their service and get alerts whenever your score changes.
How can you quickly improve your credit score?
Check your credit score to see why it is low.
Pay down your revolving credit as much as possible to lower your credit utilization percentage.
Have any inaccurate things removed (especially late payments).
Be added as an authorized user to an old account with perfect payment history, ideally with a low utilization rate. Ideally, this is done by a friend or relative, and they do not even have to give you the card. You can also pay certain credit repair services that will broker a deal between you and a stranger to do this.
2. Get a Handle on Bill Payments
More than 90% of top lenders use FICO credit scores, and they’re determined by five distinct factors:
Payment history (35%)
Credit usage (30%)
Age of credit accounts (15%)
Credit mix (10%)
New credit inquiries (10%)
As you can see, payment history has the biggest impact on your credit score.1 That is why, for example, it’s better to have paid-off debts (such as your old student loans) remain on your record. If you paid your debts responsibly and on time, it works in your favor.
So, a simple way to improve your credit score is to avoid late payments at all costs. Some tips for doing that include:
Creating a filing system, either paper or digital, for keeping track of monthly bills
Setting due-date alerts, so you know when a bill is coming up
Automating bill payments from your bank account
Another option is charging all (or as many as possible) of your monthly bill payments to a credit card. This strategy assumes that you’ll pay the balance in full each month to avoid interest charges. Going this route could simplify bill payments and improve your credit score if it results in a history of on-time payments.
3. Aim for 30% Credit Utilization or Less
Credit utilization refers to the portion of your credit limit that you’re using at any given time.2 After payment history, it’s the second most important factor in FICO credit score calculations.
The simplest way to keep your credit utilization in check is to pay your credit card balances in full each month. If you can’t always do that, then a good rule of thumb is to keep your total outstanding balance at 30% or less of your total credit limit. From there, you can work on whittling that down to 10% or less, which is considered ideal for improving your credit score.
Another way to improve your credit utilization ratio: Ask for a credit limit increase. Raising your credit limit can help your credit utilization, as long as your balance doesn’t increase in tandem.
Most credit card companies allow you to request a credit limit increase online; you’ll just need to update your annual household income. It’s possible to be approved for a higher limit in less than a minute. You can also request a credit limit increase over the phone.
4. Limits Your Requests for New Credit—and the Hard Inquiries with Them
There are two types of inquiries into your credit history, often referred to as hard and soft inquiries.3 A typical soft inquiry might include you checking your own credit, giving a potential employer permission to check your credit, checks performed by financial institutions with which you already do business, and credit card companies that check your file to determine if they want to send you pre-approved credit offers. Soft inquiries will not affect your credit score.3
Hard inquiries, however, can affect your credit score—adversely—for anywhere from a few months to two years. Hard inquiries can include applications for a new credit card, a mortgage, an auto loan, or some other form of new credit. The occasional hard inquiry is unlikely to have much of an effect. But many of them in a short period of time can damage your credit score. Banks could take it to mean that you need money because you’re facing financial difficulties and are therefore a bigger risk. If you are trying to improve your credit score, avoid applying for new credit for a while.
Does removing hard inquiries improve your credit score?
Yes, having hard inquiries removed from your report will improve your credit score—but not drastically so. Recent hard inquiries only account for 10% of your overall score rating. If you have erroneous inquiries, you should try to have them removed, but this step won’t make a huge difference by itself.
5. Make the Most of a Thin Credit File
Having a thin credit file means that you don’t have enough credit history on your report to generate a credit score. An estimated 62 million Americans have this problem.4 Fortunately, there are ways to fatten up a thin credit file and earn a good credit score.
One is Experian Boost. This relatively new program collects financial data that isn’t normally in your credit report, such as your banking history and utility payments, and includes that in calculating your Experian FICO credit score. It’s free to use and designed for people with limited or no credit who have a positive history of paying their other bills on time.5
UltraFICO is similar. This free program uses your banking history to help build a FICO score. Things that can help include having a savings cushion, maintaining a bank account over time, paying your bills through your bank account on time, and avoiding overdrafts.6
A third option applies to renters. If you pay rent monthly, there are several services that allow you to get credit for those on-time payments. For example, Rental Kharma and RentTrack will report your rent payments to the credit bureaus on your behalf, which in turn could help your score. Note that reporting rent payments may only affect your VantageScore credit scores, not your FICO score. Some rent-reporting companies charge a fee for this service, so read the details to know what you’re getting and possibly purchasing.
A new entry into this field is Perch, a mobile app that reports rent payments to the credit bureaus free of charge.
The Bottom Line
Improving your credit score is a good goal to have, especially if you’re planning to either apply for a loan to make a major purchase, such as a new car or home, or qualify for one of the best rewards cards available. It can take several weeks, and sometimes several months, to see a noticeable impact on your score when you start taking steps to turn it around. You may even require the aid of one of the best credit repair companies to remove some of those negative marks. But the sooner you begin working to improve your credit, the sooner you will see results.