The Top 5 Ways to Boost Your Credit Score
Your credit score affects many areas of your life. It determines whether you’ll get approved for a loan, what interest rate you’ll pay, and sometimes even what jobs you can apply for. This 3-digit number plays a powerful role in your financial life.
Do you want a higher score? Who doesn’t!
Here are the top 5 ways to boost your credit score:
1. Pay Your Bills on Time
Paying your bills on time is the best thing you can do to increase and maintain your credit score. It may seem obvious, but it’s worth mentioning because it makes up 35% of your credit score calculation. Late payments to lenders and creditors, even if only by a few days, can significantly impact your score. Do everything in your power to pay your bills on time, including setting up reminders or enrolling in automatic payments through your credit card and loan providers.
If you fall on hard times and can no longer pay your bills, contact your creditors immediately and discuss potential options. Every creditor is different, so you’ll need to contact each separately. But make sure you do so before the bill goes into collections. A collection will stay on your report for seven years.
If you miss a payment, don’t panic, it happens. Contact your creditor to see what can be done, if anything, and make the payment as soon as possible. Then, make sure not to fall behind again. Once you show a steady pattern of on-time payments, your score should improve over time.
2. Pay Down Debt
The credit bureaus measure the amount of outstanding credit you have against your available balance. This is called your credit utilization ratio and is a critical part of your credit, making up 30% of your FICO Score. A high credit utilization ratio will negatively affect your score because it’s a warning sign to creditors that you may be overextended and, therefore, more likely to be late on or miss payments.
Here are some tips to achieve good credit straight from MyFICO.com
- Keep balances low on credit cards and other revolving credit.
- Don’t open several new credit cards to increase your available credit: this approach could backfire and lower your credit scores.
- Pay off debt rather than move it around. Owing the same amount but having fewer open accounts may lower your score.
The most effective way to improve your credit score as it relates to your utilization ratio is by paying down your revolving/credit card debt. Create a payment plan that puts most of your payment budget towards the highest interest cards first while maintaining minimum payments on your other accounts. This is called the debt avalanche method.
3. Don’t Close Old Credit Cards
Leave old credit card accounts open unless they charge you an annual fee. The unused credit helps your credit utilization rate.Plus, the length of time you’ve had the card also improves your credit age. The older your credit is, the better your score.
4. Check Your Credit Report for Accuracy
A common misconception is that checking your credit will negatively impact your score. Each time your credit is checked, an inquiry is noted on your credit report. Whether or not it will affect your score depends on who is checking your credit and why.
Every inquiry is classified as either a soft inquiry or a hard inquiry. Soft inquiries don’t affect your credit score, but hard inquiries can. Checking your credit is considered a soft inquiry and will not affect your score because you are not officially applying for credit.
When you fill out a form to get prequalified for a mortgage, student loan, personal loan, or credit card, there are no strings attached. However, if you decide to apply for a loan, the lender will make a hard inquiry, which will show up on your credit report and can temporarily lower your credit score.
Routinely checking your credit report for errors is a good financial habit to have. It’s an easy way to ensure your personal and account information is correct and may help detect identity theft.
5. Report Any Credit Report Errors
Even people with the best financial habits find errors and issues that bring their credit score down.
Review your credit report at least once a year and look closely for errors. They may include:
- Payments reported incorrectly
- Incorrect balances
- Accounts that don’t belong to you
- Incorrect payment amounts
- Missed due dates
If you find an error, you can report the incorrect information to the credit bureau and provide proof of your claim. They have 30 days to respond.
In summary, here are the top five ways to boost your credit score:
- Pay your bills on time
- Pay down debt to lower your utilization ratio
- Do not close old credit cards with long credit history
- Check your credit report for accuracy
- Report any errors
Do what you can to boost your score. Stay mindful of your due dates, keep your credit card balances low, and monitor your credit reports for errors that the credit bureaus can fix. The changes won’t take effect overnight, but with consistent habits, you’ll improve your credit score over time.
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