Tips to Improve Your Credit Score

Pay Your Bills on Time

This may sound like a no-brainer, but it’s hard to stress the importance of being prompt with paying your bills enough. To quantify, debt payment history accounts for 35% of your credit score, making it the most critical credit scoring factor overall. Research has found that a single late payment can lower your credit score by as much as 180 points. Not only will always paying your bills on time help quickly build credit, but it can also save you money, as you’re less likely to encounter late fees with your credit accounts. If you struggle with this, we recommend signing up for automatic payments or setting up reminders through email or on your phone. Once you get in the habit, it should serve as positive momentum for credit repair and can go a long way in improving your credit score.

Reduce Your Credit Utilization Ratio

Your credit utilization ratio, simply put, is the percentage of your available credit that you’re currently using. If, for example, you have $10,000 of available credit and you have $2,000 of debt on your credit card bill, your credit utilization ratio would be 20%. This accounts for about 30% of your credit score, making it the second most significant factor after payment history. And that’s precisely why you should strive to reduce your credit utilization ratio. According to Experian, “your credit utilization ratio should be 30% or less, and the lower you can get it, the better it is for your credit score.” If you’re currently sitting at 31% or higher, you’ll want to make every effort to get that number down to a max of 30%. Once you do so, be sure to keep credit utilization in mind when deciding what percentage of your available credit to use in the future.

Request Credit Limit Increases

This ties into our previous credit score hack. A simple way to reduce your credit utilization ratio is to get a credit limit increase. Say, for example, you had $2,000 of debt with $5,000 in available credit. You would have a credit utilization ratio of 40%, which is higher than it should be. But let’s say you requested a credit limit increase of $3,000 for a new total of $8,000. In that case, having $2,000 of debt would only mean a credit utilization ratio of 25%. Just like that, you would use a smaller percentage of available credit, which should help improve your credit score. Just be sure not to go overboard and request credit limit increases on several accounts simultaneously because it can signal to lenders that you may be a borrowing risk.

Avoid Opening New Lines of Credit

The length of your credit history accounts for 15% of your credit score. The longer your credit history, the better your credit score should generally be, and vice versa. Following this logic, you should avoid opening new credit lines because, by default, it reduces the length of your credit history. As a result, it’s likely to affect your credit score adversely. This isn’t to say you should never do so, as it’s often unavoidable, and opening a new credit line is necessary for establishing yourself long-term. But you should always be cognizant of it, and especially avoid opening multiple new lines of credit at once.

Pay Off Your Balance

Let’s go back to the credit utilization rate, where the less percentage of available credit you use, the better. If keeping your credit utilization ratio no higher than 30% is good, paying off your credit card debt is even better. And it’s a win-win because not only does paying off your debt help build credit, but it also prevents you from paying interest. With the average person paying $855 in interest each year, this can help put you in better financial health. So having a zero credit card balance goal is a massive two-pronged attack for improving your credit rating and keeping you out of unnecessary debt. Plus, it makes you far more attractive to a credit card company.

Become an Authorized User on a Credit Card

Becoming an authorized user on another person’s credit card (the primary cardholder) means you can make purchases with the card as if it was your own. Also, it means you’re responsible for repaying any debt that accumulates with the credit card. This is another relatively simple but effective way to lift your credit score, especially if it’s on a card with a high credit limit, low credit utilization ratio, and good payment history. Some experts even say this can help you achieve a credit score of 700 or higher after a few years. This is a popular way to help teenagers start to build credit. As long as you and the primary cardholder pay off your debt quickly, this can help boost both of your credit scores at once. In terms of who’s eligible to become an authorized user, it can be anyone who meets the age requirements of the credit card issuer, with examples being a spouse, partner, child, or close friend. Ideally, the primary cardholder will have a good credit history, plenty of mutual trust, and someone who wants to improve both of your credit scores actively.

Have a Variety of Credit Accounts

Your credit mix contributes to 10% of your credit score, which means it’s helpful to use a variety of credit accounts. Note that there are three main types of credit accounts:

• Revolving credit – Accounts where you can repeatedly borrow and repay up to a specific limit (unsecured credit card, secured credit card, and credit lines)
• Installment credit – Accounts where you borrow money in one lump sum and repay it, typically with interest, in installments (mortgage loan, auto loan, student loan, or any type of installment loan)
• Open credit – Accounts where the debt balance has to be paid in full each month

If, up until now, you’ve only used a few types of credit accounts or less, adding diversity should contribute to achieving good credit and make you more attractive to lenders. Note that you can also turn everyday expenses like paying rent into credit accounts of sorts. Rent reporting services like BoomPay and PaymentReport will report you making your payments on time, which can further assist in credit repair.

Get a Credit Builder Loan

To put your foot on the gas pedal, you can get a credit builder loan that strategically aims to increase your credit score. Unlike a traditional loan, where you get the money upfront and gradually pay it back over time, a credit builder loan is different. With it, a lender holds the amount borrowed in an account, and you make fixed payments. As you make payments, you gain more access to the funds — all the while, everything is made known to a credit reporting agency. This makes it a great way to show you’re capable of making payments on time, which can catapult your credit score quickly, even without a credit card.

Avoid Closing Old Credit Cards

Let’s say you just got a new credit card, and you’re no longer using an old one. You should close it out, right? Actually, no. There are two main reasons why having multiple credit card options is wise. Keeping old credit cards means having more available credit and extended credit history. A lower credit utilization ratio often comes with a higher amount of available credit. And with a longer credit history, you’re more established — something lenders prefer over borrowers with little to no credit. While there might be exceptions, such as paying high annual fees, you’ll generally want to keep it around, as it should help you achieve better credit. As you increase the length of your credit history and use a lower percentage of available credit, you can transform a low credit score into a fair, good, or even excellent one.

Wrapping Up

Many people’s credit scores aren’t nearly as high as they’d like them to be. Fortunately, there are several ways to raise yours and achieve a good credit score quickly. From disputing errors on your credit report to paying your bills on time to having a healthy credit mix, these are all integral to credit repair and should put you on your way to good credit.

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Article by Garit Boothe, Due

About the Author

Garit Boothe is a financial blogger and entrepreneur. He began his studies in economics at The George Washington University in Washington, DC, before embarking on a missionary journey in Argentina.

Upon returning to the United States, he explored various jobs, side hustles, and business ventures, ultimately finding his niche in digital marketing. Currently, Garit operates a digital marketing agency that specializes in serving fintech companies while also contributing to his personal finance blog.