Whether it's a mortgage, a cell phone contract or a car loan, a good credit score can open many doors in your life. If you're wondering how to improve your credit score, there are simple ways to boost it - and sooner than you might think.
From reducing credit balances to paying bills on time, we've compiled six simple tips to improve your credit score, all of which are low-stress and worthwhile.
Keep your credit utilization low
Don't let the term credit utilization scare you away. Not only is this financial terminology easy to understand, it's also one of the fastest ways to improve your credit score by keeping it low.
Credit utilization simply indicates how much of your credit you are using compared to the total amount available to you. Ideally, you should keep this figure as low as possible. One of the best ways to do this is to maintain low credit card balances. Experts recommend using less than 30% of your credit limit on each card1 - and lower is even better.
Take a strategic approach by paying down your credit card balances
Before your billing cycle ends. Card issuers typically report balances to the credit bureaus on settlement day,2 so pay as much as you can before that day. Another tactic is to pay off the balance several times a month.
Become an authorized user.
Another good credit tip for quickly improving your credit score is to sign up as an authorized user on a friend or family member's account. While not all credit card issuers allow you to add authorized users, this tactic can be especially useful if you're unable to increase your credit limit or if you have a short credit history.
The only downside? You're jointly responsible for repaying the card.
So if the primary user makes late or missed payments, it will show up on your credit report.
Pay your bills on time
Speaking of payment history: Paying your bills on time is one of the most important factors in determining your credit score, accounting for a whopping 35% of it. Just one late or missed payment can add up to seven years to your report3. Therefore, it's important that you do everything you can to pay on time.
One way to do this is to sign up for automatic payments. Another way is to set up a calendar to remind you of upcoming due dates - or simply write something on a wall calendar.
Check your credit report
A single error on your credit report can negatively impact your credit score, and fixing it can improve your credit score faster than you think. Fortunately, there are more ways than ever to check your credit score for free.
Once you have your reports, check them for errors. Verify that the following basic information is correct before reviewing the details of each account:
- Name
- Address
- Social Security number
- Employment history
If you find a mistake, dispute the credit report error immediately.
Keep old accounts open
Much like your work history on a job application, your old credit accounts can represent your reliability to the credit bureaus. Your credit history also accounts for about 15% of your credit score,4 so it can be helpful to keep old accounts open, even if you don't use them.
Another tip for your credit score: As you reduce your overall available credit, closing a long-standing account can also increase your credit utilization, which lowers your credit score. So there are more reasons to hold on to old accounts.
However, weigh the benefits against the potential downsides of keeping old accounts. If an extra balance tempts you to go on a shopping spree, reconsider your old credit cards.
Don’t apply for too much new credit
Opening new credit accounts can affect your credit score in two ways. On the one hand, it increases your overall credit limit, which is a positive factor. On the other hand, any application for new credit may trigger a certain type of review, known as a "hard inquiry." Since such a review can be negative, you should avoid applying for many new loans in a short period of time.
Not only will your score drop, but too many inquiries at once can be a warning sign to lenders. They may view your actions as a plan to take on a lot of new debt. So if you intend to apply for new credit that can improve your score, try to spread out your applications.