5 ways to improve your credit score
Read, 4 minutes
Key takeaways
- Your payment history plays a large role in determining your credit score
- Try to keep your balances below 30 percent of your total available credit
- Keeping older credit cards open can improve your credit health
- Check your credit report at least once a year
You probably know a higher credit score can make it easier for you to get a loan or borrow at more favorable rates. But how can you improve your credit score? Here are five credit-boosting tips.
Pay your bills on time
Why it matters
Your payment history makes up the largest part—35 percent—of your credit score. Even small slip-ups can lower your score by a lot. Late or missed payments stay on your credit report—and can affect your credit score—for up to seven years.
How to boost your score
Always make at least the minimum payment by the due date. You can set up payment reminders and automatic payments within your accounts so you never accidentally miss a due date. Just make sure you have enough money in your accounts to cover your bills. Also, check your credit reports at least once a year and correct any inaccurate information.
Keep your balances low
Why it matters
The second most important factor in determining your credit score is how much of your available credit you’re using. That’s called the credit utilization rate. If the rate is high—meaning, you’re close to hitting your credit limits—lenders may view you as more likely to default.
How to boost your score
Having credit cards and using them isn’t a bad thing, but it’s important to keep your debt manageable. The best practice is to pay your credit card bills in full every month. If you can’t, pay as much as possible. Try to keep your credit utilization rate below 30 percent. That means if you have a credit card with a $10,000 limit, the balance should be less than $3,000. Also, make sure you understand how credit limits work.
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Don’t close old accounts
Why it matters
Your score considers the length of your credit history, along with the ages of your different accounts. In general, a longer credit history means a higher score. If you close old cards, you are lowering the average age of your accounts. When you last used your cards is another factor in your score. Even if you intend to keep an old account, your credit card issuer may close it if it hasn’t been used for a long time.
How to boost your score
Keep older credit cards active, even if you don’t need them. Consider putting small, recurring purchases on them, such as streaming service subscriptions. Then set up payment reminders or automatic payments to make sure you pay off the balances on time. Also, think twice before opening new accounts, since they lower your average account age.
Quick tip
When you close an old account, you are lowering your total available credit. As a result, your credit utilization rate could go up and your credit score could go down.
Have a mix of loans
Why it matters
Lenders like to see that you can manage multiple loans at the same time. In general, it’s good to have a mix of credit cards and installment loans—such as a mortgage, an auto loan and student loans—that you pay on time.
How to boost your score
This is a relatively small part of a credit score, so it probably isn’t effective to open new accounts just to try to pump up your score. But know what types of loans you have and consider improving the mix the next time you need to borrow money.
Think before taking on new credit
Why it matters
Getting a new credit card can both help and hurt your credit score, so it’s important to be strategic. Research shows that people who open several credit accounts in a short period may be higher credit risks than those who don’t, according to FICO, the leading credit score provider. When you apply for a new credit card, your credit score could fall initially because the lender looks at your credit report (known as a hard credit check) and the average age of your accounts is lower.
How to boost your score
Open new accounts sparingly and avoid doing it at all if you’re about to seek a mortgage or other major loan. If you get a new credit card, try not to use it much. That way, you’re using less of your available credit, which could improve your credit health. And if your credit history is limited, a new card could help improve your score, as long as you pay on time and don’t take on too much debt.
If you always pay on time and handle credit responsibly, you’re already on the right track. Learn more about your credit score and how it’s calculated so you can better manage your financial life. You can also sign up for a credit tracking service that monitors your score. Some banks and card companies offer this service for free.
