Having a good credit score can give you peace of mind and save you money in the long run. Want to boost your credit score? Here are five tips you can use to improve your FICO score. These steps will not only improve your credit score, but they’ll also help you take control of your finances and build better credit habits in the process.
1. Use Your Credit Responsibly
The best way to increase your credit score is by using credit wisely. If you use a small portion of your available credit at times, don't let that ratio drop below your average usage. Keeping your utilization rate low is a critical factor in determining your credit score and can affect 100 points or more. The lower your utilization rate, the higher your score is likely to be.
If you want to keep your credit score in good shape, try not to spend any more than you earn (yes, it can be a challenge at times). Staying within a budget will help boost your credit score since it indicates that you're using credit responsibly—and it'll keep money in your pocket for future savings and investments. Keep your credit usage in control, and don't let anyone use your card in your absence.
2. Keep Low Balances on Your Credit Cards
The most excellent tip to follow when boosting your credit score is keeping balances on your credit cards low. You'll benefit by keeping your balance below 30 percent (or even 20 percent, if you can swing it) at all times. The less debt you carry on your card, and especially in relation to your total available credit, the better off you'll be.
Additionally, it's essential to pay off as much of your credit card bill each month as possible. Aim for paying your balance in full every month—and keep an eye on which accounts have higher interest rates. Transfer credits from cards with high-interest rates to low-interest ones and try not to borrow money unnecessarily.
3. Don't Deactivate Old Accounts.
Do you have old, unused credit accounts? Are you tempted to close them? Please don't do it. Closing old credit card accounts can significantly affect your credit score. The length of your credit history is a crucial determinant of your overall score. One of your FICO scores considers how long your credit accounts have been active. Closing a card or account, even if you don't plan on using it, will make you look like a riskier borrower.
If a card has a zero balance, it suggests that you haven't used it in quite some time—which is good. It shows creditors your ability to manage money wisely and that they can trust you when they lend money. You should avoid closing an account unless you absolutely must, like if you're getting a new job overseas and aren't going to need that U.S.-based card for a long time.
4. Pay and Settle Oustanding Debts on Time
Paying your outstanding debts on time is one of the most significant factors when it comes to improving your credit score. Late debt settlements can negatively impact your score, as well as collections, foreclosures, and bankruptcies. If you find yourself in these situations, it's going to take some time to clean up your credit report and get back on track.
Remember, lenders will always request you to provide proof of at least 12-month history of satisfactory payments. If you settle your debts on time for a couple of years, you can see tangible improvements in your credit score and quick approval by lenders.
5. Fix Errors
If you’ve been turned down for a loan or new credit card because of errors in your credit report, then it’s time to pull out that binder and get busy correcting your mistakes. If you discover any incorrect info, contact your three credit reporting agencies (TransUnion, Equifax, and Experian) and alert them to the problem.
The U.S. Fair Credit Reporting Act (FCRA) gives you three ways to fix a mistake on your credit report: First, you can try negotiating with a credit bureau directly; if that doesn’t work, you can go through their internal dispute resolution process; and finally if your problem is still unresolved after following both of those steps, you can complain directly to consumer reporting agencies under FCRA Section 609.
What to Avoid
Don't pay an agency or an individual to repair your credit score. After making some mistakes on your credit report, it's tempting to pay someone else to fix those mistakes and improve your credit score. But be wary of companies that charge you fees and ask you to sign up for their services. We also don't recommend credit-counseling services.
If a company or individual charges you to fix your credit score, then it's likely a scam, and their services aren't worth it. There are numerous free online resources to help you improve your credit score instead of paying someone else to do it for you.
Credit scores are some of the most mysterious components of your financial health, and they hold incredible power over you. When getting approved for loans and mortgages, having a high credit score can mean the difference between landing a fantastic interest rate and getting turned down altogether. So it's imperative to do everything in your power to keep your score high.