11 Simple Ways to Improve Your Credit Score

Your credit score is synonymous with your financial credibility and worth. Your financial standing, reflected through your credit score, lets banks and lenders know whether you use your credit wisely and are eligible to receive loans. In other words, the higher your credit score is, the better equipped you are to access loans at interest rates lower than you can imagine, and credit cards that come with a host of rewards and benefits! You even benefit from instances where you need to rent a house. Since we’ve mentioned low interest rates, let us also share that your monthly payments reduce largely and you end up saving a lot more money for investments or emergencies.

Therefore, besides paying your bills timely and using your credit cards responsibly, devote some time and energy and follow these 11 simple tips to ensure a higher credit score and better financial health.

Follow these 11 simple tips to ensure a higher credit score:

1. Assess your credit reports carefully

You can’t fix something you don’t know is broken, can you? Your credit situation is no exception. The best measure of what’s going wrong with your credit score would be your credit reports because they include your entire credit history. To analyze them, first obtain them from the three credit bureaus - Experian, Equifax, and TransUnion. Each of the bureaus shares an online report for free once a year and you can access them from the annualcreditreport.com portal. Give each of them a thorough read to understand what’s going well and what isn’t.

Remember that the following are indicators of low credit scores, so be sure to look for them:

• High credit card balances
• Late payments
• Collections
• Judgments

Finally, to get a higher credit score, ensure that your credit reports include:

• Timely bill payments
• Credit cards with low balances
• Combination of different types of credit card and loan accounts
• Older credit accounts that are used occasionally
• Fewer inquiries for additional credit

2. Raise disputes for credit report errors

While going through your credit reports, look for inconsistencies. You may come across minor and critical errors, but both are equally important because they contribute to lower credit scores. Minor errors comprise incorrect spellings of names or addresses. In certain cases, the account might be held by someone with the same name. As the term suggests, critical errors are more serious and must be examined with caution. You may have instances where it may be reported as late or delinquent, or the same debt may be featured twice. Also, closed accounts may be featured as open or timely payments may be shown as late. Finally, accounts may show the wrong balance or credit limit!

Should any of these discrepancies appear on your credit report, contact the bureaus immediately, file a dispute for the errors, and have them rectified. Once the information’s removed, your credit score will go up in no time. In the end, remember to be patient as the entire process from accessing your report to getting the errors corrected will take time.

3. Pay your bills in a timely manner

FICO is a credit scoring model and its credit scores, used by over 90 percent of well-known lenders, place the greatest importance on payment history and attribute 35 percent to it. The remaining 65 percent is distributed among other elements, including credit usage, credit accounts age, credit mix, and new credit inquiries.

The bottom line is to make sure you don’t miss any payments or delay them by more than 29 days. Because when a payment is delayed by 30 days or more, it may be reported to the credit bureaus by the credit issuer. Unfortunately, since the record of your late payments stays on your credit report for 7.5 years, you know what you need to do to make sure these details don’t appear on it. You stand to gain if your payment history contains details of debts (such as a student loan) you paid off within the stipulated time frame.

So, how do you ensure that you don’t miss or delay your payments? You could use these measures and see if they work for you:

• Come up with a filing system to track all your payments; it could be paper-based or digital.
• Make all your payments automatic debits from your bank account.
• Set reminders for each bill, so you don’t miss their due dates.

In the end, you could also combine all your monthly payments and use a credit card to pay them off. Just make sure you pay the consolidated amount every month so that you don’t have to worry about interest charges. You end up paying bills without much fuss and on time, so it positively impacts your credit score.

4. Use 30 percent or less of your available credit

When you divide your credit card balance by the credit assigned to you, you get the Credit Utilization Rate. Since FICO considers credit utilization second in line to payment history, it’s also crucial to your credit score. The simplest solution to maintaining your credit utilization ratio is paying off every penny from your credit card balances monthly.

As an alternative, work on maintaining it at 30 percent or less of your entire credit limit. Then continue your efforts toward reducing it to 10 percent or less. Wondering how to keep it below 30 percent? Here are some ways to do so:

• Use more than one credit card for all your purchases.
• Make multiple payments in a billing cycle for sizable purchases that are few and far between.

In a word, requesting your credit card company for an increase in credit limit may be another way of maintaining your credit utilization ratio, which we’ll revisit later.

5. Don’t close old accounts

FICO allots 15 percent to the age of credit accounts and it’s third in line. Any idea what it assesses? It examines the time frame for which you’ve had your credit accounts. In other words, the longer the time frame, the better the position you’re in because creditors and lenders find the idea of a long and impeccable credit history appealing!

So, it makes sense to keep your old credit accounts open. You may be wondering why it’s necessary to do so when you don’t use these accounts and you have many new ones for your small or large purchases. Closing the old accounts at the same time the new ones have balances is detrimental to your credit score because your available credit would take a hit. In turn, this would shoot up your credit utilization ratio and negatively impact your credit score.

Therefore, use them to buy things from time to time. A card that’s still in use can’t be closed; neither can its credit limit be lowered!

6. Combine all your debts and pay them off

If you have a number of pending debts, you can combine them and pay them off with a debt consolidation loan from a bank instead of making multiple payments. A lower interest rate (should you get one) will reduce the timeline for your loan payment, boosting your credit utilization ratio, and in turn, your credit score.

Likewise, another way to go is to use a balance transfer credit card to settle all your credit card balances in one go. The only downside to this method is the balance transfer fees you need to fork over, and that could be anywhere between 3-5 percent of the transfer amount.

7. Restrict opening many new accounts

Opening accounts is critical to building your credit file. But since everything should be done in moderation, you may want to restrict the frequency of credit applications you submit. Every time you apply for a new account, whether it’s for a loan, a credit card, a mortgage, or something else, it results in a hard inquiry, where creditors feel the need to check your credit file to determine whether you’re a credible borrower. If this happens multiple times, banks might assume that monetary troubles are compelling you to do this. Hard inquiries form a part of your credit report and impact your credit score, so the fewer times they appear on your report, the better off you’ll be.

It’s important to remember that opening new accounts will also result in fewer old accounts while reducing the average account age, which can also affect your credit score negatively. As a result, apply only for credit that you absolutely can’t do without. In a situation where you need a new card but don’t know whether you’ll qualify, fill out a pre-qualification form and submit it online. This isn’t likely to impact your credit score, so you can do it as many times as you want to.

8. Request higher credit limits

If there’s no change in your credit balance while your credit limit shoots up, your credit utilization ratio goes down, enhancing your credit score. Your credit limit’s likely to go up in two instances: one, when you’ve built great credit over time or two, if your pay increases.

Asking for a credit limit increase at least twice a year seems fair enough. The majority of credit companies have the option of requesting such increases online. So, to request higher credit limits, contact your credit card issuer and find a way to bypass the hard inquiry if feasible. That way, your credit score won’t be much impacted. You could ask for a minimal increase in your credit limit and have it approved right away without any hassles. If the credit company asks you to share more details to process your credit limit increase, don’t entertain them. Save yourself from a hard inquiry and get a subsequent push in your credit score.

To conclude, never ask for a credit limit increase on a new card because that may not work out in your favor. Also, it doesn’t make sense to ask for an increase on something you’ve hardly or never used.

9. Secure credit for rent and utilities

If you pay your monthly rent timely, rent reporting services could include a list of these payments on your credit report and help the credit score to improve. While VantageScores, another credit scoring model, includes it, FICO 8, an updated version of FICO, doesn’t. So, all credit scoring models don’t follow the same guideline.

Experian Boost is a tool that can help you increase your credit score, particularly if you’ve been consistently paying your utility bills. All you have to do is link your bank accounts to the tool. It then looks for all transactions related to phone bills, utility bills, and streaming services you’ve made in the past. Finally, it asks you which ones you want to include in your credit report (from Experian) and you end up getting the latest FICO score within a short period. Consider registering for it since it’s free and you have nothing to lose!

10. Keep a range of credit accounts

Having different types of credit accounts indicates that you have what it takes to manage your money. With a variety of credit accounts, you can also improve your credit score. If you have a car loan, a credit card, and a mortgage on your home, each contributes toward enhancing your credit score.

To summarize, when you pay off all your loans on time, they can appear on your credit report for at least 10 years! So, should you think of getting another loan, it’ll be a breeze with an increased credit score!

11. Obtain a credit builder loan

Credit builder loans also play a part in increasing your credit score so you should consider getting one. How it works is you pay every month into a certificate of deposit or CD (at a specific interest rate) for two years. Once you start making payments, your bank will share the payment details with the credit bureaus. The administrative fees are deducted at the end of the loan period, and the remaining CD amount is handed over to you.

Conclusion

So, do you think these tips will help your credit score reach where it needs to be? We sure hope so! Having great credit is critical because it implies excellent finance management skills on your part. It’s also important for a loan approval that you use to invest in a car or rent a house! It’s wise to start working on your credit score early and exercise patience because it may take anywhere between three to six months (perhaps longer) for a positive change to appear on your credit report. In summary, do whatever it takes to keep the missed payments, multiple credit applications, and topped out credit cards off your credit report and you should be good to go!