Having a good credit score is essential for your financial well-being. A high credit score helps you qualify for better interest rates on loans and credit cards, saves you money on insurance premiums, and can even make it easier to rent an apartment or get a job. If your credit score is not where you want it to be, don’t worry – there are steps you can take to improve it.
1. Check Your Credit Report
The first step to improving your credit score is to know where you stand. You can get a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year at AnnualCreditReport.com. Review your credit report for any errors or inaccuracies that could be dragging down your score. If you find any mistakes, dispute them with the credit bureaus to have them corrected.
2. Pay Your Bills on Time
One of the most important factors in determining your credit score is your payment history. Payment history makes up 35% of your FICO credit score, so it’s crucial to pay your bills on time every month. Set up autopay or reminders to ensure you never miss a payment. Even one late payment can have a negative impact on your credit score, so make paying your bills on time a top priority.
3. Reduce Your Debt
Another major factor in calculating your credit score is your credit utilization ratio, which measures how much of your available credit you are using. Ideally, you should keep your credit utilization ratio below 30%. If you have high balances on your credit cards, focus on paying down your debt to improve your credit score. Consider using the debt snowball or avalanche method to eliminate your debt more effectively.
4. Avoid Opening New Accounts
While it may be tempting to open new credit cards or loans to improve your credit mix and increase your available credit, opening too many new accounts can lower your average account age and hurt your credit score. Instead of opening new accounts, focus on managing your existing accounts responsibly and paying down your debt. Only apply for new credit when you really need it.
5. Keep Old Accounts Open
The length of your credit history accounts for 15% of your FICO credit score, so it’s important to keep your oldest accounts open. Closing old accounts can shorten your average account age and lower your credit score. Even if you don’t use a credit card or loan anymore, consider keeping the account open and making small purchases to keep it active. Just be sure to pay off the balance in full each month to avoid interest charges.
6. Monitor Your Credit Score
Regularly monitoring your credit score can help you track your progress and catch any errors or suspicious activity that could be affecting your score. Many credit card companies offer free credit score monitoring as a cardholder benefit, or you can sign up for a credit monitoring service like Credit Karma or Credit Sesame. Keep an eye on your credit score and report to see how your actions are impacting your creditworthiness.
7. Consider a Secured Credit Card
If you have a low credit score or no credit history, a secured credit card can help you build or rebuild your credit. With a secured credit card, you make a cash deposit that serves as your credit limit. Use the card responsibly by making small purchases and paying off the balance in full each month to establish a positive payment history. Over time, your credit score will improve, and you may qualify for an unsecured credit card with better terms.
8. Work with a Credit Counselor
If you’re struggling to improve your credit score on your own, consider seeking help from a credit counselor. A credit counselor can review your financial situation, create a personalized action plan to improve your credit score, and provide valuable tips and resources to help you reach your financial goals. Look for a nonprofit credit counseling agency that is accredited by the National Foundation for Credit Counseling (NFCC) to ensure you’re getting the best advice and support.
