A good credit score makes everything in your financial life a bit easier. If you have good credit, you’ll qualify for the best interest rates on mortgage and loan products. In addition, you may be eligible for lower insurance premiums or have an easier time renting an apartment and getting hired.
But the reverse is also true — bad credit will make everything in your life a bit harder.
If you’ve ever wondered how to improve your credit score, then this article is for you. But first, you need to understand the different factors contributing to your overall credit score.
How is Your Credit Score Calculated?
When a lender runs your credit, most will check your FICO score. Every year, 90% of top-rated lenders use FICO scores to help them make lending decisions. FICO scores range from 300-850, and the higher your score, the less of a risk you are to potential lenders.
Your FICO score is calculated using different criteria in your credit reports. This information is then broken down into five main areas:
- Payment history (35%): Your payment history is a record of whether or not you pay your bills on time. If you have a history of late payments, this will negatively impact your FICO score.
- Amounts owed (30%): The amounts owed category looks at how much of your available credit you’re using. For instance, if you have $5,000 in available credit and you’ve spent $4,500, this could indicate to a lender that you’re overextended financially.
- Length of credit history (15%): This category looks at how long your available credit accounts have been open. In general, the longer your credit history, the more it will help your overall score.
- Credit mix (10%): Your FICO score also considers the different types of available credit you have. For instance, having a credit card, mortgage, and auto loan look better than just having three credit cards.
- New credit (10%): And finally, FICO looks at your new credit and whether you’ve opened several accounts within a short period of time.
9 Ways to Improve Credit Score
Now that you understand how your FICO score is calculated, you can begin taking steps to improve it. Let’s look at nine ways you can begin improving your credit score.
1. Request a free copy of your credit report
According to a Federal Trade Commission (FTC) study, one in five people have errors on their credit reports. That’s why it’s important to check your credit report regularly.
When you sign up with Fortuna Credit, you’ll automatically receive free credit report alerts to help you stay on top of any changes as they happen.
If you find an error on your credit report, you can file a dispute with each bureau that made a mistake. You’ll explain the error in writing and send copies of any documents that support your claims. Once you’ve filed your dispute, the credit bureau has 30 days to review it and get back to you.
2. Pay your bills on time
Your payment history accounts for the largest percentage of your credit score. That’s because a history of late payments makes you seem like a bigger risk to a potential lender. So if you want to improve your score, the best way to do it is by paying your bills on time.
If you struggle with late payments, then try to automate this process as much as possible. You can either set up online bill pay through your bank account or use the autopay feature offered by your lenders.
3. Keep your credit utilization low
Another way to improve your credit score is by keeping your credit utilization ratio as low as possible. Your credit utilization is the percentage of your total available credit. For instance, if you have $6,000 in available credit and have spent $3,000, your credit utilization ratio is 50%.
When it comes to your credit, there is no ideal credit utilization ratio. But most experts agree that you should aim to keep it below 30%. To get started, find out what your current credit utilization ratio is and how much debt you need to pay off to get it below 30%.
4. Don’t close old accounts
If you’ve been working on paying down credit card debt, you may be tempted to close old lines of credit once you’re done with them. After all, if the card is closed, then you won’t be tempted to rack it back up again.
However, it’s a good idea to leave old credit accounts open. That’s becoming long-standing accounts look good on your overall credit history. And when you close old accounts, it raises your credit utilization ratio because you have less available credit.
So if you need to, cut those paid-off cards up but don’t close the account. Instead, leave them open and decide not to spend any money on them.
5. Pay twice a month
If you’re working on paying down the balance on a credit card or loan, you’re probably making one payment per month. Instead, try to time the payments so you’re making two smaller payments a month.
This won’t make a big impact on your credit score, but it will help over time. Splitting up your payments like this will add in a few extra payments per year, which will save you money on interest. And as you pay down your principal balance faster, you’ll lower your credit utilization ratio.
6. Become an authorized user
Building your credit score can take time, and there are no quick fixes. But if you’re interested in raising your score quickly, you might consider becoming an authorized user on a friend or family member’s credit card.
That person can add you as an authorized user without even giving you access to the account. But you still get to take advantage of that person’s credit and payment history.
However, you should only ask a friend or family member you trust. Becoming an authorized user will be the most helpful on a credit card with a high credit limit. And if that person has trouble paying their bills on time, becoming an authorized user could end up hurting you.
7. Consider a secured credit card
If you don’t have anyone willing to make you an authorized user on their account, you can also consider taking out a secured credit card. With a secured credit card, you pay an upfront deposit which is usually the same as your credit limit.
From there, you’ll use it just like a regular credit card. You’ll make regular payments, and once the card is paid off, your security deposit is returned to you.
If you choose to go this route, make sure you choose a lender who reports your on-time payments to the credit bureaus. And look for a lender that is willing to upgrade you to an unsecured credit card eventually.
8. Don’t open too many new accounts
If you have a high credit utilization ratio, it can be tempting to try to open a new credit card or personal loan to raise it. But opening new credit accounts too frequently will hurt your score.
And every time you open a new account, a hard inquiry is recorded on your credit report, which lowers your score temporarily. And if you apply for a new credit card and are denied, this will look even worse on your credit report.
Your best bet is to focus on paying down outstanding debt and try to open new accounts as infrequently as possible.
9. Sign up for a credit monitoring service
Maintaining a good credit score is an ongoing effort, so it’s a good idea to sign up for a credit monitoring service.
Did you know, Fortuna Credit offers credit monitoring at no cost? Just create a profile and connect your bank. You will receive periodic updates so you can stay informed about what’s happening to your credit. It’s quick and easy. Get started here.
The Bottom Line
If you’re not sure how to improve your credit score then hopefully, this article has shown you that it’s possible. If you’re looking for ways to raise your score quickly, try checking your credit, paying down debt, or signing up as an authorized user on another credit card.
It won’t happen overnight, but with consistent effort, you’ll continue to build credit over time. And as your score continues to improve, you’ll be able to take advantage of all of the benefits that come with having a good credit score.
*Any opinions expressed are those of Fortuna Credit and have not been reviewed or approved by any of our partners.