5 Ways to Improve Your Credit Score
These simple moves can help build your credit and strengthen your financial future
Your credit score can impact many areas of your life, but its importance to your financial future can’t be overstated. A poor credit score can affect your interest rates on a mortgage and or an auto loan—costing you hundreds or thousands of dollars in interest. So if your credit score needs a boost, here are five ways to improve it.
Pay bills on time
Even if you have minimal debt, making payments on time can have a positive impact on your score. Falling even a few days behind on a payment, on the other hand, can impact your credit score negatively, so it’s important to pay on time.
If you find yourself forgetting to make payments, set up reminders or automatic bill pay.
These strategies can help you keep track of your accounts so that you never miss or fall behind on a payment.
Maintain low revolving credit balances
Your balance-to-limit ratio is an essential factor when determining your credit score. To calculate your balance-to-limit ratio, add up all your credit balances and divide that amount by your total credit limit. According to Experian, keeping your credit utilization below 30% can help, but there’s no magic threshold. Generally, the lower your utilization, the better for your credit scores. Ideally, you should pay your credit balances in full every month.
Once you pay off some of your credit card balances, don’t close the accounts. Closing a credit card can reduce your available credit and increase your balance-to-limit ratio, so it may not be a good short-term strategy. Keep in mind that closed accounts can remain on your credit report for several years.
Apply for new credit only when necessary
Don't apply for a credit card or loan just to increase your credit score. It could end up backfiring. If you need to open new accounts, try to spread them out over time, as opening too many accounts at once could negatively impact your score.
Pay off debt
If you currently have any type of debt, work toward paying it off. Reducing credit card balances, in particular, can lower your credit utilization and potentially help your credit score while also reducing the interest you pay.
Review all of your accounts and the total amount of debt you owe. Then, make a plan, such as repaying your smallest credit balance or highest-interest debt first.
Check your credit reports
Review your credit reports regularly to make sure the information is accurate. Correcting inaccurate negative information can help improve your score.
You can get your reports from Equifax, Experian, and TransUnion for free at AnnualCreditReport.com.
Look for accounts you don’t recognize, incorrect balances or credit limits, and payments incorrectly reported as late. If you find an error that’s hurting your credit score, dispute it with the credit reporting company and the company that provided the information.
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Remember, improving your credit score won’t happen overnight. But consistent habits—paying on time, keeping balances low, and checking your credit reports for errors—can help move your credit in the right direction over time.