Your credit score is the doorway to so much in your financial life.
This three-digit number measures whether you are managing debt responsibly and is a key factor in determining whether you qualify for a loan and what interest rate you will pay.
Insurers, utilities, and cell phone companies also have your score to determine prices. Landlords also use the scores in their rental inquiries. So, it is important to have a good one.
What is a good credit score? Borrowers with FICO scores on the upper end of the 300-850 range are considered the least risky, while those with scores on the lower end are the riskiest for lenders.
- Exceptional: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
You can check your score for free on sites like CreditKarma and CreditSesame. Many credit card companies also provide a free credit score each month to cardholders.
If your score is lower than you expected, here are eight ways you can try to improve it.
The first step is to make sure that your credit score is based on the correct information in your credit report. Everyone is entitled to a free credit report from each of the national credit bureaus – Experian, Equifax, and TransUnion – once a year. To shoot yours go to annualcreditreport.com.
Once you have it in hand, make sure that all of the accounts listed on the report belong to you and that they accurately reflect your payment history. Report any errors to the credit bureau for further investigation.
Set up automatic payments
If you often pay your bills late, set up automatic payments from your bank account every month. Your payment history makes up the largest part of your FICO credit score at 35%, so improving the speed of paying your bills will eventually increase your score.
Reduce balances intelligently
The amounts you owe on credit cards represent 30% of your FICO score. FICO rewards you if you can resist the temptation to increase your spending near the limit. This is why you will get a higher score if you use 25% or less of your available credit on each of your credit cards and in total.
So start by paying off the balances that are closest to maximizing first, before turning to others for quick help.
Do not open new accounts
Whenever you apply for new credit – like store cards or credit cards – the lender will pull your credit report as part of the application process. This is called a difficult survey and several draws in a short time to determine your credit score.
“Only apply for credit when you need it,” says Ulzheimer.
Open a new account
Ignore the previous recommendation if you have a bad credit rating or no credit rating at all. In these scenarios, you need some sort of debt to help you repair or build your credit.
Apply for a secured credit card, which requires a small initial deposit typically between $ 500 and $ 2,000 to secure the line of credit. Then use it for small recurring bills every month and pay it off in full every month. Positive payment behavior will eventually increase your score.
‘Boost’ your score
If you pay your utility and cell phone bills on time, use them to improve your credit score. A new tool from Experian – called Experian Boost – allows you to instantly add this payment history to your credit report for free by providing your bank ID and password to the credit bureau.
Experian has estimated that about two-thirds of people will see an improvement in their scores after using the tool.
“If you get 20 to 30 points, that’s a big deal,” says Ulzheimer.
Unfortunately, this only increases a credit score based on your Experian credit report, so if a lender is using TransUnion or Equifax, you’re out of luck.
Credit score failures
Another quick way to boost your score is to use two strategies that Ulzheimer calls “chess moves to get credit scores.”
Swap your debts: Pay off your credit card balance with a new personal loan or home equity loan. While the total debt you owe is always the same, you won’t be disappointed with FICO for having high credit card balances. Instead, it will appear that you are not using any of your available credit. Another victory? Loan rates are often lower than interest rates on credit cards, so you save money on interest.
Pay strategically: Here’s another way to make it look like you’re not using a lot or none of your available credit card limits. Try to pay off your balance, or as much as you can, before the statement closing date. The balance on that date is sent to you and the credit bureaus, and is used when FICO calculates your credit score. It doesn’t mean you need to change your spending behavior, it just means you’re tackling unpaid debt earlier in the billing cycle.
“If you can eliminate or reduce that balance even using the card the same way you always do, then your score can go up,” says Ulzheimer. “I call it ethical credit hacking.”