Your credit score plays a big role in your financial life. It can determine whether you are approved for credit cards, loans, and mortgages as well as how much interest you pay. The good news is there are steps you can take to improve your credit score. Here's an in-depth guide on how to do it.
Check Your Credit Report
The first step is to check your credit report from all three major credit bureaus - Equifax, Experian, and TransUnion. This allows you to review your credit history and check for any errors or fraudulent activity that could be negatively impacting your score.
You can access your credit reports for free once a year at AnnualCreditReport.com. Be sure to check reports from all three bureaus, as the information reported can vary.
Review your reports carefully, looking for:
- Accounts you don't recognize
- Incorrect balances, dates, or payment statuses
- Mistakes in your personal info like an incorrect address
- Negative items older than 7 years (10 years for bankruptcy)
If you spot any errors, dispute them immediately in writing with the credit bureau and your creditor. This can improve your score quickly if the errors are fixed.
Pay Down Balances
Another way to boost your credit score is to lower your credit utilization ratio. This ratio compares your total balances to your total credit limits. Experts recommend keeping your utilization below 30%.
Pay down balances aggressively, focusing on maxed out cards first. Avoid running up balances close to your limits. You can also ask issuers for higher limits to lower your utilization.
Comparison of Recommended Credit Utilization
| Excellent | Good | Fair | Poor |
|---|---|---|---|
| Below 10% | 10-20% | 20-30% | Over 30% |
Keeping utilization low on both overall and individual cards demonstrates you can manage credit wisely.
Pay All Bills on Time
Payment history is the biggest factor in your credit scores, comprising 35% of your FICO score. Late or missed payments can devastate your scores and stay on your credit reports for 7 years.
Set up autopay through your issuer or bank to ensure you never miss a payment deadline. If cash flow is tight, call issuers to ask for due date changes so payments align with your pay schedule.
If you do miss payments, get current as soon as possible and begin establishing a positive record. With time, the negative impact will decrease. Avoid missing further payments, as this signals risk.
Comparison of On-Time Payment Importance
| Excellent | Good | Fair | Poor |
|---|---|---|---|
| No missed payments ever | Few 30-day lates years ago | Occasional 60-day lates | Recent missed payments |
A strong on-time payment history improves your credit significantly.
Limit New Credit Applications
Every credit application triggers a hard inquiry on your credit report. Too many hard inquiries in a short timeframe can signal risk and depress your scores.
Limit applications to times you have a specific financing need. Space out applications by 6-12 months to avoid raising red flags. Exceptions are applications for pre-approved offers which are soft inquiries.
Also, reduce your number of open accounts over time by closing unused cards and loans. Keep your longest open accounts active. Your total available credit is important, but long credit history also boosts your scores.
Comparison of New Credit Application Impact
| Excellent | Good | Fair | Poor |
|---|---|---|---|
| No inquiries | Few over years | Many recent inquiries | Lots of new accounts |
Applying conservatively helps demonstrate you're managing credit well.
Mix Types of Credit
Credit mix factors into 10% of FICO scores. Scores reward experience managing different types of credit - installment loans, credit cards, mortgages, etc.
Adding new credit strategically can help. Consider financing a car to add an installment loan or consolidating cards into a personal loan. Opening or being added as an authorized user on a mortgage or auto loan can also help.
Just be sure to make payments on time and keep balances low. Don't open accounts just to improve your mix - make sure it's an account you need.
Comparison of Credit Mix Importance
| Excellent | Good | Fair | Poor |
|---|---|---|---|
| Mortgage, auto loan, 3+ cards | Mortgage, auto loan, 2 cards | Auto or student loan, 1 card | No installment loans, 1 card |
Having a variety of account types demonstrates well-managed credit.
FAQ
How long does it take to improve your credit score?
It depends on your starting score and negative factors dragging it down. With diligent credit management, you may see minor improvements in 1-2 months. Rehabbing a very poor score can take 6 months or more. The key is to consistently practice good credit behaviors.
What is a good credit score?
Most credit experts consider scores of 720 and higher good to excellent. But requirements vary - one lender may approve you with a 670 score while another denies you. Check your key goal - a mortgage, auto loan or apartment - to see the minimum score needed.
Can credit repair companies help?
Some are legitimate, but many exaggerate what they can do or make false promises. You can do everything they do yourself for free. Beware companies that promise to remove all negative items - this is often illegal.
How do I rebuild credit from scratch?
Start with a secured card requiring a cash deposit. Use it for 6-12 months with perfect payments to build history. Then graduate to an unsecured card and continue perfect payments. Limit applications and let your score improve over time.
Why was my credit score suddenly so low?
Big drops are often due to a late payment, bankruptcy, foreclosure, tax lien or someone stealing your identity and damaging your credit. Check your reports and dispute errors immediately. If the drop is due to late payments, get current and continue perfect payments.
