Boost your credit score quickly to get better loan terms and improve financial health.
When it comes to your financial life, there are lots of important numbers—your debt level, your net worth, your salary. Among the most important, however, is your credit score, the three-digit number assigned to you by credit bureaus based on how likely they believe you are to repay your debts.
Typically ranging from 300 to 850, your credit score impacts many aspects of your financial life, from your ability to get a loan (and a low interest rate) or credit card, to the rates you pay for insurance and even, in some cases, your ability to get a job. The higher the number, the lower interest rates lenders will offer you.
Lenders report payments to three main credit bureaus, Equifax, Transunion, and Experian, so it is possible that your credit score at one agency could be different than at another. In general, however, your scores should all be within 20 points of each other, or should be carefully scrutinized for issues. Some credit card issuers allow users to check their score for free as well.
So how do you improve your credit score? Fifth Third Bank has a concise fact sheet on how to improve your score. Here are five additional key steps you can take:
1. Set Your Bills On Autopay
Late payments can ding your credit score. By setting up your accounts to pay at least the minimum automatically, you’ll never forget to pay a bill again. Just make sure you keep enough money in your checking account to cover the payment, and regularly look over your bills to make sure they don’t include incorrect charges or new fees that you did not know about.
2. Don’t Apply for New Accounts, and Don’t Close Old Accounts
Each time you apply for credit, whether you’re opening a store card or taking out a mortgage, your credit score takes a temporary hit. If you’re focused on raising your score, avoid opening any new accounts for the time being.
But while you don’t want to open new accounts, it is also important to keep existing accounts open. The length of your credit history is one factor that credit agencies consider when determining your score, so having longer-term accounts on your report can benefit your score.
3. Pay Down Existing Loans
Your credit-utilization ratio, or the amount of available credit that you’re using, is a major factor in your credit score. Ideally, you’ll want to keep this ratio below 30% (meaning you’re using less than a third of the credit that is available to you). If your total utilization rate is higher than that, focus on paying down that debt. Bonus: In addition to boosting your credit score, paying down existing debt will reduce the amount of money you need to pay in total interest.
4. Ask for Higher Credit Limits
Another way to improve your credit-utilization ratio is by increasing the amount of debt available to you. This option typically works best for those who have a history of on-time payments. More than eight in 10 people who asked their card issuer for a higher credit limit received one, according to a recent study by LendingTree.
For example, if you have a credit card with a $10,000 limit, and you have a $3,000 balance, your utilization ratio is 30%. If the issuer raises your limit to $12,000, your credit utilization ratio will automatically go down to 25%.
One note of caution: Avoid the temptation to use that higher credit limit. A higher limit will only boost your credit-utilization ratio if you’re able to maintain (or lower) the outstanding account balance.
5. Check Your Credit Report
Each of the three major credit bureaus maintains a credit report on you that they use to determine your credit score. By law, you can receive a free copy of each report (request it at annualcreditreport.com) once per year. Reviewing those reports can not only show you any problem areas to work on, but it also gives you an opportunity to look for mistakes.
A Consumer Reports study found that more than a third of consumers found a mistake on their credit report. Simply finding and correcting any such mistakes could give your score a boost.
Whether you’re looking to boost a low score or improve a score that’s already above average, raising your credit score is an important financial goal. That’s true no matter where you are in your journey, but it’s particularly important for anyone planning to finance a large purchase, such as buying a new house or car. Following the credit score tips above can help you quickly raise your credit score.