Tips on How to Improve Your Credit Score

Shannon McKee
Expert Contributor
Last Updated:
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Your credit score is one of the most crucial numbers in your financial life, determining your interest rates on credit cards and loans and whether or not you qualify for an affordable mortgage on your dream home. Your credit score may affect the car you drive, the apartment you rent, and possibly even the job you get.

Although several companies track your credit and calculate your credit score, the Fair Isaac Corporation is one of the most well-known and your FICO score is the credit score most widely used by lenders.

Even if you have a low credit score due to financial mistakes in your past or lack of a credit history, you can turn it around. All it takes is understanding the five factors that make up your credit score and taking action to improve those factors – by correcting mistakes on your credit report and with smart money management.

Keep in mind: There are very few ways to boost your score instantly, but you can make gradual improvements until you have good credit by following these three easy steps.

Tips on How to Improve Your Credit Score

Check Your Credit Reports

When you’re serious about increasing your credit score, start by getting copies of your credit report from the three major credit reporting agencies. Equifax, TransUnion, and Experian are the three big credit bureaus that track your history as a borrower. You should review all three of them. Different creditors and financial institutions report to different credit bureaus, so you can’t rely on just one if you’re looking to spot mistakes that could be unfairly reducing your credit score.

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You’re eligible to receive a free copy of your credit reports yearly thanks to the Fair Credit Reporting Act. Before this act was signed into law, the credit bureaus could charge you to get a copy of your report unless you had been denied credit because of the information contained in the report.

Once you receive these reports, you’ll want to go over them very carefully. There are often errors and mistakes on credit reports that could bring your credit score down.

Review your reports and verify the accuracy of:

  • Your personal information, including current address and employer’s name
  • Balances, credit limits, and account information on credit card, loan or mortgage accounts
  • Your payment history, specifically payments erroneously reported missing or late

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  • Up-to-date account information, including the absence of old items – such as bankruptcies or closed accounts – that shouldn’t be on your credit report any more
  • Accounts opened fraudulently in your name
  • Liens, levies, or other legal actions that could affect your credit

Any errors you find should be disputed with the specific credit bureau that issued the report with the error. You may see that each of the reports has errors on them or that only one or two do. You’ll have to contact each of the credit bureaus separately to have these errors examined and removed. Removing inaccuracies on your credit reports is one of the fastest ways to boost your credit score.

If you are in the middle of applying for a significant loan, such as a mortgage or vehicle loan, you may wish to request a “rapid re-score,” which will ensure the up-to-date information is reflected on your credit report, and in your credit score, quickly.

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Check your Credit Score

Once you’ve corrected errors and inaccuracies on your credit reports, you’ll want to check your credit score to see where you stand and how much you have to improve. Your credit score is not included with your credit reports.

Some credit card companies, including Discover and Wells Fargo, offer your credit score for free if you have a credit card with them. Make sure these scores are official FICO scores, and not credit scores offered by a different company. Your FICO score will range from 300 to 850.

You can also obtain your FICO credit scores through all three credit bureaus for a small fee.

Know the Factors that Go into your Credit Score and Take Steps to Make Gradual Improvements

Five factors make up your FICO credit score. Each one has a different degree of importance. Once you know the factors, you can study your credit reports and your accounts to determine the steps you can take to improve your credit.

    1. Payment history – Your payment history is the single-most important aspect of your credit score, making up 35% of the number. If you haven’t paid any credit card bills or loan accounts more than 30 days late, your credit score will be in pretty good shape. It’s also good to pay slightly more than the minimum due each month.You can lose points for each payment that is more than 30 days late, up until your account is 120 days late. At that point, the account may be “charged off,” which will reduce your credit score even further. If your credit score is suffering due to missed payments, you can start making on-time payments and see your score rise.

Delinquent accounts are reflected in your credit history. You should attempt to settle delinquencies with your creditors as soon as possible, perhaps negotiating a lump sum payment and an arrangement to have the account marked “paid as agreed,” rather than “settled” or “paid settled.” Any agreement that shows you paid the debt, however, is better than having an “unpaid,” or “charged off,” account on your credit report.

  1. Credit utilization ratio – This number represents the amount of debt you owe relative to the available credit on revolving (credit card and home equity line of credit) accounts. Unlike installment accounts such as a personal loan or a mortgage, a revolving account has a credit limit. You can borrow money up to that credit limit, pay it off, and borrow again. Experts recommend keeping the total amount you owe on revolving accounts at less than 30% of your available credit to boost your credit score. The lower your credit utilization ratio, the better, because this number makes up 30% of your credit score. Paying down your balances can increase your credit score quickly.
  2. Credit history – The length of time you’ve been managing credit makes up 15% of your credit score. FICO considers the average age of your accounts, along with the age of your oldest and newest accounts. If you recently opened a credit card or took out a loan, your credit score may drop by a few points for a short time. But if you have a lengthy credit history, it won’t have a major effect.
  3. Credit mix – Your FICO score takes into account the diversity of your credit. Lenders want to see that you can manage installment loans and revolving credit. You shouldn’t borrow money you don’t need, since this factor only makes up 10% of your credit score. But if you happen to have a vehicle loan or a mortgage and few credit cards, this aspect of your credit score should be in good shape.
  4. New credit – Borrowers who have recently taken on new credit may represent a higher risk, since it shows a need for more money than you currently make. If you open a new credit account – or even apply for new credit – your credit score will take a slight hit for about 12 months. But if you are taking out credit to reduce your credit utilization ratio or consolidate high interest debt, the choice may be worthwhile since “new credit” only accounts for 10% of your credit score.

Once you’ve disputed any errors on your credit reports and paid or settled delinquent accounts, the best way to raise your credit score even further is by managing your credit carefully. Make all your payments on time, don’t charge your credit cards to their limits, and be responsible and strategic about opening new accounts.

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It doesn’t take long to see significant improvements to your FICO credit score, enabling you to qualify for better interest rates and terms on credit cards, loans, car insurance, and more.

If you’re looking for debt relief solutions to help you improve your credit score Solvable can help. Our service helps educate people looking to improve their credit, find debt solutions, and achieve a better financial outlook. Check Solvable out today to see what we can offer.

 

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Shannon McKee
Expert Contributor
Last Updated: