If you’ve been wondering how to improve your credit score, you’re not alone. A good credit score has a lot of perks—it can help you get approved for loans, save money on insurance and more. But having a bad credit score is a huge pain in the butt. It can make it harder to get approved for loans or rent an apartment and even hurt your ability to find work or pay off student loans after graduation. If you want to make sure that your financial future isn’t hindered by poor credit management, here are seven ways to improve your score:
Figure out what your credit score is.
Before you can work on improving your credit score, it’s important to know what that score is. Credit scores are calculated using different models (called “scoring models”). The most widely used scoring model is called the FICO® Score.
Credit scores are based on your credit history and use information from trade lines listed in your credit report. Lenders use these scores to decide whether or not they’ll lend money to borrowers—and how much they should charge the borrower in interest rates. Your credit score ranges from 300 to 850; the higher your number, the better off you are when applying for a loan or mortgage.
Pay your bills on time.
- Pay your bills on time and avoid incurring interest charges and fees.
- If you can’t pay a bill in full, call the credit card company to ask for an extension or make other payment arrangements (usually at no charge).
- Avoid letting accounts go into collections; if that happens, it will remain on your credit file for seven years and hurt your overall score by 100 points or more.
Pay off debt, especially credit cards.
If you already have a credit card, then paying it off is a great way to boost your score. But if you don’t yet have one or want to get rid of the ones you currently have, then applying for them and using them responsibly is also an option that can help build your credit history.
On the other hand, using them irresponsibly (by making late payments or carrying high balances) can hurt it—and this is especially true when it comes to student loans. The average monthly student loan payment (on which borrowers carry an average balance of $37,172) has increased nearly 60 percent since 2005, according to The Wall Street Journal. This means that people who borrowed money while they were in school are struggling under heavier burdens than ever before—which means their ability to improve their credit scores may be limited by their debt load.
Don’t close unused credit cards.
If you’re married or in a committed relationship, it’s not uncommon for your partner to be the primary borrower on all of your shared debt. That means that if one of those debts is maxed out and unpaid, then both of your credit scores will suffer the consequences. On the other hand, if one spouse pays off their share while the other spouse continues to carry a balance and make payments on time, then it can actually boost their score by reducing overall debt burden.
A good rule of thumb: If you’re not using a card and don’t plan on using it anytime soon, consider canceling—or at least removing yourself as an authorized user—and applying for another account instead. That way you won’t end up negatively affecting both accounts’ payment histories simply because they’re linked together through shared ownership (which counts against each credit profile).
Know how much of your credit you’re using.
The second most-neglected factor is your credit utilization ratio, which is the amount of your available credit that you’re using. If you have a $10,000 limit and use $3,000 of it, that’s 30% — not good!
It’s important to regularly check how much of your total available credit you’re using. This is especially true if you know there are certain times of year when your spending tends to go up (for example, during tax season) or if there are other factors (such as an upcoming wedding or vacation) that could lead to a temporary cash crunch.
Know the difference between “good” and “bad” debt.
It’s important to know the difference between good debt and bad debt. Bad debt includes any debts that you can’t pay off in three years or less, such as credit cards and car loans. Good debt is used to buy assets that increase in value over time, like a college education or a home mortgage. It also includes investments like stocks, bonds and mutual funds, which provide income from dividends or interest payments over time.
Avoid applying for new credit cards or loans often.
One of the biggest mistakes you can make is applying for new credit cards or loans too often. This can be detrimental to your score, as lenders will see you as a riskier borrower and might not approve your application. Avoid applying for too many credit cards in any given year. The average person applies for one new card per year, but some people apply for several more than that—and they don’t realize how this could be affecting their scores!
In general, if it’s not an emergency situation requiring immediate funds (like paying rent or buying groceries), then it’s better to wait until you have some money saved up before making large purchases on credit.
You can improve your credit score by using available information and behaving wisely when it comes to managing your finances
The information on your credit report is public, and it’s used to determine your credit score. Credit reports are also used to determine if you qualify for loans and credit cards. A good credit report can help you get lower interest rates on loans or save money by getting approved for a better loan product.
A bad or thin report could mean that you don’t qualify for certain types of loans or higher interest rates on others. Your landlord may check your report when deciding whether to let you rent an apartment, and some employers check applicants’ reports during the hiring process as well.
The bottom line
There are many ways to improve your credit score, and we hope that by reading this post you feel more confident about using the information around you.