So, you want to increase your credit scores?
Keep reading to learn how to improve your scores quickly and maintain them.
Understanding Credit Scores
Credit scores are numerical representations of your creditworthiness, indicating the likelihood of you repaying borrowed money. These scores are used by lenders, landlords, insurance companies, and others to assess your financial reliability. Scores typically range from 300 to 850, with higher scores indicating lower credit risk.
- Excellent: 750 – 850
- Good: 700 – 749
- Fair: 650 – 699
- Poor: 600 – 649
- Bad: Below 600
Why You Want Higher Credit Scores
Having a higher credit score offers you:
- Access to Better Loan Terms: Higher scores often result in lower interest rates and more favorable loan terms, saving you money over time.
- Lower Insurance Premiums: Insurance companies may offer lower premiums to individuals with higher credit scores, reflecting lower perceived risk.
- Increased Approval Odds: Lenders are more likely to approve your applications for credit cards, loans, and mortgages with higher scores.
- Renting Opportunities: Landlords may prefer tenants with higher credit scores, giving you access to better rental properties.
- Employment Opportunities: Some employers check credit reports as part of the hiring process, especially for positions involving financial responsibilities.
Steps to Increase Your Credit Score
According to astudyby the FTC, one in five people have errors in their credit reports. These errors can impact your credit score since the information on your credit report is used to calculate your score.
Follow these steps to boost your score:
1. Check Your Credit Reports
Request a free copy of your credit report through AnnualCreditReport.com, the only federally mandated website to access all three credit bureau reports for free. Review your personal information, public records, and account accuracy.
2. Correct Inaccurate Information
Verify the information is correct and dispute all inaccurate information with the creditors. You can easily dispute inaccurate information directly with the credit bureau using their website. This process can help increase your credit scores by removing negative information and inaccuracies.
3. Remove Negative Information
After identifying incorrect information, initiate the dispute and removal process. Dispute and remove negative trade lines older than 7 years, settle collection accounts and push delinquencies further in time by making on-time payments.
4. Get More Credit
Increase your available credit by paying down credit balances to free up available credit. Request credit limit increases or apply for new credit cautiously. Adding to your credit mixture by diversifying the types of credit on your profile can also boost your score.
5. Add Your Rent or Utilities
Explore options to add rent and utility payments to your credit file. Services like Experian Boost allow you to report these payments, potentially boosting your credit score.
6. Consider Becoming an Authorized User
If you have a trusted family member or friend with a good credit history, consider becoming an authorized user on one of their accounts. This can help establish or improve your credit history.
7. Open a Secured or Credit Builder Account
Apply for a secured credit card, personal loan, or credit builder account. These accounts don’t rely on credit history or scores. They help you establish or improve credit scores by requiring a security deposit equal to the credit limit.
Remember to monitor your credit score regularly and adjust your strategies to achieve your credit goals.
Tips to Maintain Healthy Credit Scores
Here are more tips to improve your credit scores.
Tip 1: Pay Your Bills on Time
Timely payment of bills, including credit cards, loans, and utility bills, is crucial for maintaining a positive payment history. Set up reminders or automatic payments to ensure punctuality.
Tip 2: Avoid Opening Too Many New Accounts
Apply for new credit only when necessary and avoid unnecessary inquiries.
- Opening multiple new credit accounts within a short period of time can lower your average account age and indicate a higher risk to lenders.
- Multiple hard inquiries can temporarily lower your score. Instead, shop around for loans or credit cards within a focused timeframe.
Tip 3: Keep Old Accounts Open
The length of your credit history is a significant factor in determining your credit score. Keep older accounts open, even if you don’t actively use them, to maintain a longer credit history.
Tip 4: Diversify Your Credit Mix
A mix of different types of credit accounts, such as credit cards, installment loans, and mortgages, can positively influence your score. However, you only need to open accounts that you can manage responsibly.
Tip 5: Use Credit Responsibly
Demonstrating responsible credit behavior over time is key to building and maintaining a good credit score. Avoid behaviors such as late payments, defaults, or maxing out credit limits.
Tip 6: Watch Your Credit Utilization
Aim to keep credit card balances low relative to your credit limits. High credit utilization ratios can negatively impact your score. Pay off outstanding balances and avoid maxing out your cards.
Focus on reducing your credit card balances below 10% of your credit limits. Maintaining a low credit utilization ratio can significantly improve your credit score. Avoid closing credit cards, as this can negatively impact your credit utilization ratio.
For example, you have two credit cards. One has a $5,000 limit and the other has a $10,000 limit. Each month, you use your credit card for about $1,500 worth of expenses, which brings your utilization ratio to a safe 10 percent.
| Limits | Balance | Utilization | |
| Card 1 | $5000 | $1,500 | – |
| Card 2 | $10000 | $0 | – |
| Total | $15,000 | $1,500 | 10% |
However, if you decide that because you never really use the card with the $10,000 limit, you’re going to cancel it, but you don’t change how much you’re spending each month. Now, your credit utilization ratio has jumped to a whopping 30 percent, which can cause your score to drop.
| Limits | Balance | Utilization | |
| Card 1 | $5000 | $1,500 | – |
| Card 2 | closed | closed | |
| Total | $5,000 | $1,500 | 30% |
What can you do?
- Keep all existing credit limits and pay down debt balances
- Open a new credit card to add to your total credit limit
- Request a credit limit increase with existing cards
Tip 7: Monitor Your Credit Score
You can monitor your credit score regularly using free credit monitoring services or through your credit card issuer. Monitoring allows you to detect changes early and take corrective actions as needed.
These steps and tips can help you achieve your goals. Remain vigilant in your journey.
