Your credit score can affect many aspects of your life, including approval for credit cards, auto loans, mortgages and more. It also guides insurance providers, landlords and even employers to help them decide whether to rent, hire or offer you an insurance policy. In short, you want to treat it with some TLC!
Read more: How to use Ally Bank spending and savings buckets to pay off debt
How is your credit score calculated?
FICO credit scores are calculated using a variety of factors:
Payment history (35%): A lender will want to know the timeliness of past payments to determine how financially responsible you are.
Amount you owe (30%): If you use the majority of your available credit, a lender may believe that you are at a higher risk of defaulting on your loan.
Length of your credit history (15%): The longer your credit history, the better it is for your credit score.
Credit mix (10%): A range of credit types can help boost credit score, including credit cards, installment loans and mortgages.
New credit (10%): Opening credit accounts right before you apply for credit or opening several accounts over a short time period can raise red flags for lenders.
7 tips to help improve your current credit score
If you’re interested in raising your credit score, these steps can help you work toward your goals.
1. Regularly review your credit reports
You can receive a free credit report from each of the three major credit reporting agencies once per year: Equifax, TransUnion and Experian. Review it for any inaccurate information, and if an error is identified, make a formal request to have it corrected.
With the Ally Bank mobile app, you can access your free FICO score online, whenever you want.
There is no “fast” way to improve your credit score. It usually takes up to 45 days to see changes reflected, so consistency is key.
2. Reduce your credit utilization rate
Your credit utilization rate is the amount of outstanding credit divided by the amount of revolving credit you have available. For example, if you have $10,000 in credit available on a credit card and a balance of $3,000, your credit utilization rate would be 30%. The recommended credit utilization is generally 30% or lower, but the lower, the better, with single digits (1-10%) considered ideal for an excellent credit score.
One way to potentially improve your utilization rate is to request a credit limit increase, since having a higher limit while spending less can benefit your credit score.
3. Make your bill payments on time
Late payments can affect your credit score tremendously, especially if you regularly neglect to make your payments on time.
4. Keep older accounts open
Closing a credit account may increase your credit utilization ratio due to removing the available credit line. It may be better to hold onto old cards, stick them in the back of the drawer or cut them up than to call your credit card provider and cancel them. Same goes for unused lines of credit.
5. Check on other debts
Consolidating debt means applying for a new loan that can put all your debts into one loan, hopefully with a lower interest rate. You may be able to consolidate expensive revolving lines of credit or other types of credit with high interest rates.
6. Limit new credit applications
Since most credit applications result in a hard inquiry, your credit card score may fluctuate when you apply for a new credit card or loan. Having newer accounts also lowers the average age of all your credit, and a longer credit history tends to be viewed as more favorable by lenders.
7. Become an authorized user on someone else’s account
If you want to build your credit history without your own card, you can be added to another person’s account as an authorized user. But keep in mind that while the primary cardholder’s responsible credit use can improve your credit score, irresponsible use can similarly hurt it.
How long does it take to see changes in your credit score?
There is no “fast” way to improve your credit score. It usually takes up to 45 days to see changes reflected, so consistency is key.
Boost credit and confidence
Your credit score is more than just a number — it’s a tool that can help you access better interest rates, more financial opportunities and greater peace of mind. While improving your credit score won’t happen overnight, taking small steps consistently can make a big impact over time.
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