Acknowledging and taking steps to manage your credit will result in improved scores. Paying bills on time (35% of the score), keeping balances low and maintaining a diverse mix are all integral parts of raising scores.
Also, it’s wise to avoid hard inquiries and only open new accounts when they make sense long term.
1. Pay Your Bills on Time
One of the key components of your credit score is how timely your payments are – late payments can lower it by as much as 100 points!
Your mortgage, credit card and loan payments typically are reported to the credit bureaus, helping build your score. But did you know that paying utility, rent and cell phone bills can also boost your score if they’re reported?
Setting up automatic payments through your bank or credit cards is the simplest and easiest way to ensure you pay your bills on time – this eliminates sticky notes or calendar reminders and can save you money from late fees and penalties. A budgeting app can also help keep track of due dates and deducted amounts each month; don’t forget setting reminders if paying manually! The sooner you start doing this, the sooner your credit score will start recovering!
2. Review Your Credit Reports
Credit reports contain a great deal of personal information about you and are used by lenders, employers and others evaluating applications for credit or financial products. When inaccurate data enters a report it can have serious repercussions; credit reporting agencies are required by law to correct errors they find on reports; thus keeping them accurate is one way of increasing your score.
Your payment history accounts for 35% of your credit scores, so even missing just a few payments could significantly lower them. Note that late payments remain on your report for 7 years after they appear on it.
Your debt-to-credit utilization ratio (also known as credit utilization ratio). Ideally, aim to keep it below 30 percent of available credit.
Your credit mix — having different kinds of accounts such as credit cards and auto loans — can also play a part in increasing your scores, though opening too many new accounts at once may temporarily lower them due to hard inquiries on your report.
3. Keep Your Credit Utilization Low
Credit utilization — or how much of your total available balance you owe on credit cards as a percentage — is one of the two key elements in determining your credit score, and keeping it low can help you to reach your goal of having an excellent score.
Credit utilization ratio should fall in the single digits – ideally below 10% – which shows lenders that you’re using credit responsibly without over-relying on it.
Calculating your credit utilization rate requires totalling the outstanding balances across your cards and dividing by their individual limits; for example, if you owe $5,000 against a $15,000 limit, your utilization rate would be 30%.
Paying off balances monthly will help lower credit utilization and can significantly lower credit utilization. If this is impossible, make multiple payments throughout a billing cycle, as many credit card companies report balances at the end of every cycle and multiple payments throughout can help to keep utilization low when reported at this time.
4. Avoid Closing Old Accounts
Maintaining old accounts can improve your credit score in multiple ways. Your credit utilization ratio measures the total amount of available revolving credit you have available; experts advise keeping this percentage below 30%. Lenders also consider how long an individual has had credit accounts as they look for evidence of responsible borrowing practices and closing an account may decrease this average age of your accounts, potentially harming your score in turn.
Closed accounts also affect your payment history and creditors may refuse to grant additional loans even if you qualify. Furthermore, closing an account that has been open for an extended period can lower your credit scores as it reduces your length of history – which accounts for around 15% of FICO scores. Accounts closed in good standing will still appear on your report for 10 years but won’t contribute towards further aging of your overall score; closing old accounts could alter your mix between revolving (such as credit cards) and installment (like mortgages or auto loans) accounts as well.
5. Avoid Opening New Accounts
If you are new to credit or have a thin file, adding too many new accounts may lead to lower credit scores. Each new account reduces your average account age while increasing risk.
Lenders prefer seeing an extensive credit history to help assess your ability to repay debt, with both revolving accounts like credit cards and installment loans such as mortgages present.
Every time you open a new account, a hard inquiry is performed on your credit report and can negatively affect your score. Therefore, it’s wise to avoid applying for multiple lines of credit at once.
