Your credit score is one of the most significant indicators of your financial wellbeing. It shows lenders how carefully you use credit at a glance. The higher your credit score, the easier it will be to obtain new loans or lines of credit. There are a few easy things you can do to increase your credit score. Here’s a step-by-step guide to help you improve your credit score.
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Check Your Credit Reports
Review your credit report for any mistakes that could lower your score and file a dispute if you find any so that they can be corrected or removed from your file. Equifax, Experian, and TransUnion are the three main national credit scoring agencies where you can get a copy of your credit report. Once you get your report, go through each one to see what can be done to improve your score.
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Get a Handle on Bill Payments
Your credit score is greatly impacted by your payment history. That’s why it’s beneficial to have paid-off debts, such as old student loans, remain on your credit report. It works in your favor if you paid your debts responsibly and on time. As a result, avoiding late payments is an easy way to increase your credit score. Follow these simple tips to repay your bills on time:
- Create a paper or digital filing system to keep track of monthly bills.
- Set up due-date reminders.
- Automate bill payments.
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Aim for Credit Utilization of 30% or Less
Credit utilization refers to how much of your credit limit you’re using at any given point in time. It’s the second most important factor in FICO credit score calculations, after payment history. Paying off your credit card balances in full each month is the easiest way to keep your credit utilization in check.
If you can’t always do this, a good rule of thumb is to keep your total outstanding balance at 30% of your total credit limit or less. After that, you should work on reducing it to 10% or less, which is considered optimal for increasing your credit score.
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Limit Your New Credit Requests—and “Hard” Inquiries
There are two types of credit inquiries: “hard” and “soft,” which are often used interchangeably. You checking your own credit, allowing a prospective employer to check your credit, checks done by financial institutions with whom you already do business, and credit card companies checking your file to see if they want to give you pre-approved credit offers are all examples of soft inquiries.
Your credit score will not be affected by soft inquiries. Hard inquiries, on the other hand, will have a negative impact on your credit score for anything from a few months to two years. Applications for a new credit card, a mortgage, an auto loan, or another type of new credit will cause a hard inquiry.
