How to Improve Your Credit Score

When you’re planning a large purchase that you’ll need a loan for – such as a home or auto purchase – you might wonder how to improve your credit score to get better interest rates, faster approvals and larger loans to get exactly what you want. By following several steps, you can increase your credit score significantly to better position yourself financially and prove your trustworthiness when getting a loan. Learn why your credit score matters and clear, actionable steps you can take now to boost your credit score overnight.

Why a Good Credit Score Matters

A good credit score matters since so much financial activity relies on credit. Buyers use credit to take out a student loan, buy a house, get a credit card and more.

Higher credit scores showcase that you are a safe buyer to give a line of credit to. Credit scores are three digits, and you’ll find they define your life a great deal because without a high number, you’ll struggle to make large purchases and get a quality credit card.

Your credit score can also dictate how much you pay for insurance, whether you get accepted to live in the apartment complex you’re hoping for and so much more.

Your credit score is something you should pay attention to at all times, not just when you’re thinking of taking out a loan since increasing that number can take time. Here’s a look at how most financial institutions view credit scores under the FICO credit scoring model.

• 300-579 (poor credit)
• 580-669 (fair credit)
• 670-739 (good credit)
• 740-799 (very good credit)
• 800-850 (excellent credit)

Spend some time learning what credit is to better inform ways to improve your score.

How to Improve Credit Score

Find tips for how to boost your credit score. This step-by-step list offers practical advice you can enact now.

1. Pay on Time

Timely payments are the largest factor in determining your credit score. Plus, if you’re failing to pay your card on time each month, you might be paying additional fees, which lowers your buying power and ability to pay down debt each month. 

Set calendar reminders for when each credit card is due and commit to paying as much of your credit card balance as possible each month to show you are a timely buyer and keep your commitments.

Make sure you’re making loan payments and rent payments on time as well. All these timely payments will factor into your credit score.

2. Reduce Credit Utilization by Paying Down Credit Card Debt

When you carry a credit card balance month-to-month you can start to exceed the guideline of using up to 30% of your credit line on that card. When your credit utilization exceeds that point, it can harm your credit score.

Look at the balance on all your credit cards and calculate your total credit utilization. For example, if your credit card has a $10,000 line of credit and you’re carrying a $4,000 balance, you’re exceeding the 30% guideline. Pay the balance down below $3,000 for best results.

You don’t necessarily have to pay off the full balance on your credit cards if you can’t do that right now. But getting those balances below the recommended maximum could help your credit score quickly since credit utilization is a major factor in your credit score calculation.

3. Increase Your Credit Card’s Limit

Because credit utilization is such an important factor in your credit score, getting a higher credit card limit can help ensure you use 30% or less of your credit each month.

For example, if your monthly expenses exceed $3,000 on your credit card even though you’re paying it off in full each month, you need a higher credit card limit than $10,000. And more than likely, the credit card company will approve a credit limit increase since you’re reliably paying off your card each month and have the income to cover the balance.

Don’t let a higher credit card limit change your spending though. You don’t want to spend more just because you can. Make sure you’re still spending what you can pay off even once your credit limit changes to ensure your credit utilization decreases and you get the benefits to your credit score.

4. Get Listed on Other People’s Accounts

If you know someone who has an incredible credit score and is very good with their money, becoming an authorized user on their credit card can help increase your credit score fast. Just be sure you know that individual’s spending habits to ensure they are staying below the recommended credit utilization and paying off their card each month.

Your friend or family member doesn’t even need to issue you a credit card to make you an authorized user. You can have no access to their accounts but still benefit from their outstanding credit.

This tactic is best for people getting started and lacking an adequate credit file to have a good credit score. If you already have several accounts, you might not see an impact from this move.

5. Monitor Your Credit Report

Mistakes on your credit report can pull your credit down quickly. You should review your weekly credit reports from the major credit bureaus to check for mistakes. When you spot one, flag it as quickly as possible.

Some mistakes you might see on your credit report include improperly marking a payment as late, credit activity that belongs on someone else’s account, information that should no longer be listed, etc.

Monitoring your report can also help you catch fraud quickly to ensure it doesn’t have an impact on your finances or your credit score.

6. Be Picky About When You Apply for New Accounts

Don’t sign up for new credit cards just because the intro offer is great. If you don’t need another card, this additional line of credit can hurt you. And when you apply for new lines of credit, the company will do a hard inquiry, which can hurt your score for a little while. With time, those hard inquiries add up and impact your score.

When you’re constantly opening new lines of credit, it impacts your average age of accounts, which is an important factor in your credit score calculation. The older your accounts, the more reliable and steady you appear.

However, this should not prevent you from rate shopping for major loans, such as a home or auto loan. You want to ensure you get the best rates and features in these situations.

7. Consolidate Debts

If you have various outstanding debts, you can consolidate them with a debt consolidation loan. These personal loans for debt consolidation generally have lower interest rates than what you’re paying currently and can help you pay off the debt faster.

Or, if you have balances on multiple credit cards, you can consolidate them with a balance transfer credit card, which generally offers lower rates for the first 12 months, allowing you to be more aggressive in paying off the debt fast. Just know that you might have to pay an additional 3%-5% in transfer fees to get the promotion. 

8. Open a Secured Credit Card

If your credit history is too limited to qualify for new accounts, opening a secured credit card can help build credit. These cards require a deposit to get a line of credit. So you’ll only get as much credit as you can put down to apply for the card. But it can help you establish credit and work your way toward a traditional credit card.

How Long Does It Take to Rebuild a Credit Score?

As you look for how to raise your credit score, understanding the timeline for how quickly you can see results might help you understand the process.

Each person’s situation is unique, but most can build their credit in 30-45 days. Your current score and the factors surrounding it will make the duration vary. If you fail to make a payment, it might take more than a year to see results. But if your credit utilization is just too high currently, seeing results from decreasing that can be fast.

Paying down debt, making on-time payments and reducing credit utilization are the fastest and easiest ways to fix your credit score.

How Credit Scores Are Calculated

Understanding how the major credit bureaus calculate your credit score can help you manage and monitor your credit more effectively. Here are the major factors that will impact your score.

• Payment history (on-time payments)
• Credit utilization
• Average age of accounts
• Credit mix (ability to pay various credit lines on time)
• Credit inquiries
• New credit applications
• Debts

Improving Buying Power by Boosting Your Credit Score

If you want better loan rates, higher insurance and rental agreement acceptance rates and greater availability to quality lines of credit, improving your credit score can help. Look for the simplest ways to do that, such as making on-time payments and reducing credit utilization. Then tackle the long-term challenges, such as paying down debt to demonstrate that you’re a trustworthy consumer. Counsel your financial adviser if you aren’t sure how to enact these tips.