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6 tips to improve your credit score

Feb. 12, 2023 • 4 min read

Whether you’re just starting to build a credit history or you’re working to improve your credit score, it’s a good idea to take stock of this important three-digit number.

Your credit score tells lenders how well you handle debt. It affects many aspects of your life, including whether you get approved 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! 

If you think your credit score needs a makeover, let’s look at a few important steps to help lenders see you as worth lending to. In this piece, we’ll show you how to improve your credit score. 

Consider improving your credit score

Let’s discuss some small helpful steps on how you may be able to raise your credit score. You can choose to focus on one tactic or try them all. 

1. Review your credit reports

One of the most proactive steps you can take to build credit involves reviewing your credit report regularly to dispute any inaccuracies. You are entitled to receive a free credit report from each of the major credit reporting agencies once per year — Equifax, TransUnion and Experian. Once you receive your  report, review it for any inaccurate information and if an error is identified make a formal request to have it corrected. If your credit report contains negative data, you may ask that the information be removed or adjusted by writing a “goodwill letter.” Creditors are not obligated to remove information from your credit report unless the information is inaccurate. However, if the negative data on your report appears isolated in an otherwise good credit history, there may be room for negotiation. You may even benefit from credit monitoring services where you will be notified when changes are made to your credit profile, such as credit score increases or drops. Credit monitoring services can also detect fraudulent activity.     

2. Check your credit utilization

Credit utilization rate, also called credit utilization ratio, depends on the amount of revolving credit you use divided by the amount of revolving credit you have available. It's how much you currently owe divided by your credit limit, shown as a  percentage. For example, you have $10,000 in credit available on a credit card and a balance of $3,000. Your credit utilization rate would be 30%.  

3. Learn when to pay your bills

Late bills affect credit scores because the three reporting agencies take note of rent, utilities and medical bills. One late payment on items such as a credit card, personal loan, an auto loan or your mortgage can affect your credit score tremendously, especially if you regularly neglect to make your payments on time. Consistent on-time payments can help improve your credit score. Unfortunately, utility or cable bills, aren't reported government agencies.  

4. Ask yourself when you'll open new accounts

When you submit a new credit application, whether it’s for a credit card or loan, there may be some affect to your credit score. Especially, if the lender does a hard inquiry into your credit history. 

Most credit applications result in a hard inquiry, which means the lender pulls your credit report from one of the main three credit bureaus, Experian, Equifax or TransUnion. Hard inquiries can cause your credit score to fluctuate slightly, compared to a soft inquiry, which doesn’t pull your credit.  

5. Keep older accounts open

You may be tempted to close your credit card accounts. However, when you do that, it can have an impact to your credit utilization ratio. Closing a credit card account may increase your credit utilization ratio due to removing the available credit line. It's ideal to use only 10% to 30% of your available credit at any given time, so keep that in mind before you close older accounts. 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. 

6. 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. Your utilization rate should be under 30% and consolidating debt responsibly may help you reach that goal. 

How long does it take to see changes in your credit score? 

The length of time that it takes to update your credit score varies but seeing changes in your credit score usually happens up to every 45 days. Every loan provider will send in updates at different times, so it's important to remember that some may send in updates more frequently than others. 

How are credit scores calculated? 

FICO credit scores are calculated using payment history (35%), amounts owed (30%), length of your credit history (15%), credit mix (10%) and new credit (10%). Let's take a look at each factor individually. For more information about FICO scores, learn more in " What is a FICO score ?"

  • Payment history: Have you paid past credit accounts on time? A lender will want to know how well you've made your payments in the past in order to determine whether to give you credit. Your past payment history represents the largest chunk of your calculation.

  • Amount you owe: 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: The longer your credit history, the better it is for your credit score. Consider the age of your credit accounts and the length of time since you've used certain accounts. However, you don't need to have an extremely lengthy credit history in order to have a good credit score. 

  • Credit mix: What types of credit do you have? A range of credit types can help boost credit score, including credit cards, retail accounts, installment loans, mortgages and more.

  • New credit: Opening credit accounts right before you apply for credit or opening several accounts over a short time period can raise red flags for lenders.

One more thing: Did you know that opening a savings account may help build your credit score? That’s because lenders see bank accounts as a sign of stability. Stability helps them see you as a good credit risk, which makes it easier for you to receive a credit card, apartment lease or auto loan and gives you opportunities to improve your credit score.

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