There are various strategies you can employ to boost your credit score, such as making on-time payments, keeping your utilization rate below 30%, disputing errors on your report and not applying for new credit. Unfortunately, these changes may take time before they have an effect.
Payment history and utilization rate are two critical elements in your credit score, so let’s explore how you can achieve both of them.
1. Pay Your Bills on Time
From utility bills and credit cards, missing payments can have devastating repercussions that affect both your score and finances. Missed payments could incur late fees, penalty interest rates and additional fees that will reduce or eliminate credit limit increases over time. Learning how to budget responsibly and setting reminders so your bills get paid on time are surefire ways of avoiding such problems altogether.
Use a calendar, planner or reminder app to track payment due dates. Speak with bill collectors about changing due dates so they better align with your paycheck or cash flow. Pay your credit cards every two weeks instead of once every month in order to reduce credit utilization and improve your score.
Other accounts reported to credit bureaus, like mortgages, auto loans and student loans can help boost your score if payments are made on time. You can even add rent payments via Experian Boost for free which could potentially raise it 13 points!
2. Reduce Your Credit Utilization
Credit utilization is an integral component of your credit score and ranks second only to payment history in its importance.
Idealy, your credit utilization should fall below 30%; however, if this goal seems out of reach for you, consider asking for a credit limit increase to lower the gap between your balance and limit and help improve your utilization rate and therefore your score.
Paying down balances may also help, though doing so can be challenging if you’re experiencing debt. Be aware of your credit card issuers’ statement closing dates and ensure any balance you owe is paid prior to that date; this will reduce credit utilization ratios over time and could lower credit utilization ratios each month. Or consider an installment loan, like personal loans, to eliminate revolving debt and improve your scores.
3. Don’t Apply for New Credit
Credit scores are essential components of financial health, so you should work to improve it regularly instead of only when applying for loans. One effective strategy to boost your score is incorporating good habits into your everyday financial routines.
Addition of new accounts may improve your credit mix – which makes up 10% of your FICO score – provided they can be managed properly; otherwise, debt may accumulate that is unmanageable for repayment.
If you need to apply for new credit, make sure the account has low balances and will improve your overall credit mix. Also check whether there are eligibility requirements before applying; hard inquiries could prevent long-term complications down the line.
4. Review Your Credit Report
No magic solution exists for raising credit scores, but developing positive practices such as paying on time and limiting credit utilization are surefire ways to do it. Whether building from scratch or rebuilding after bad credit has diminished scores, these practices provide an effective foundation to start from.
Reviewed your credit reports periodically is also an integral component of maintaining healthy scores. Each year you are entitled to one free report from each of the three credit reporting agencies; this request does not trigger a hard inquiry. By reviewing these reports regularly and disputing any errors you find with them (misspelled name/address; accounts reported late/delinquent but aren’t; double listing debts or closed accounts still showing open), errors that could be impacting your score can often be rectified quickly leading to immediate score increases.