A high credit score gets you places, and a low one makes your life difficult. Knowing how to raise your credit score may seem overwhelming, but it’s not as hard as it seems.
Whether you have a score you’d rather not speak about or you just wish your average score would increase a bit, there are ways to improve your credit that anyone can use.
Check out our guide on the top 5 ways to raise your credit score so you can start improving your credit today.
Why do you Need a High Credit Score?
Do you know the importance of a credit score? Most people know it’s what lenders look at to qualify them for a loan, but it does more than that. A high credit score may help you get lower insurance rates, secure a cellphone or utility package with no deposit, and even get a good job.
Many companies today pull your credit to measure your financial responsibility. A low score tells them you don’t manage your finances well. This could work against you if you’re signing up for a new account or even trying to get a job (especially those that deal with money).
This three-digit number can have a serious effect on your life. It’s one of the most important factors to focus on as you get yourself back on solid financial footing.
If your score isn’t as high as you’d like, check out the top 5 ways to raise your credit score.
1) Pay your Bills on Time
Payment history is 35% of your credit score. It makes up the largest portion of your score, so focusing here is important.Pull copies of your free credit report here and see which accounts have late payments. Bring them current as fast as you can. Credit bureaus don’t report late payments until they are 30 days late, so get all payments current.
If you can’t catch up fast, contact your creditors and ask about a payment arrangement to get you back on track.
Once you are current on all payments, keep it going. Make this your focus. Even if you only make minimum payments on your credit cards, make them on time. The minimum payment satisfies the payment obligation and counts as an on-time payment.
The more consistently you pay your bills on time, the faster your credit score will increase.
2) Decrease your Credit Utilization Ratio
Your credit utilization ratio is the next largest factor of your credit score. Your credit utilization is the amount of credit outstanding compared to your credit line.
For example, if you have a $1,000 credit line and you have $800 outstanding, you have an 80% credit utilization ratio. To raise your credit score, your credit utilization ratio should be 30% or less. In the $1,000 credit line case, that means no more than $300 outstanding at one time.
If you have a higher utilization rate, find ways to pay your balance down. Using the debt snowball or debt avalanche method is a great option. If you don’t want a specific ‘program’ just focus on paying more than the minimum payments on one card at a time to lower your utilization rate.
3) Correct Inaccurate Information
Mistakes happen all the time on credit reports, but you can’t fix them if you don’t know they are there. Pull your credit reports at least once a year and check for accuracy.
Look for accounts that don’t belong to you (fraudulent activity) as well as errors on accounts that belong to you. For example, was a payment reported wrong or a date input incorrectly? Is your balance incorrect?
Any errors you find, dispute with the reporting credit bureau. For example, if TransUnion reported it, file a dispute with them and if Equifax made the mistake, dispute the error with them. All credit bureaus offer an online dispute option that’s simple and quick.
4) Don’t Apply for New Credit
The sheer amount of pre-approvals you get in the mail are certainly a temptation to open a new credit line, but don’t.
Only apply for new credit when you need it. Having too many open credit lines does two things.
- It makes you more likely to get in over your head in debt because the ability to spend is there
- It decreases your credit score because of the new credit (lowers your credit age) and your utilization rate if you rack up more debt
5) Don’t Close Old Credit Accounts
It seems smart to close your credit card accounts, especially if you’re trying to raise your credit score, but don’t.
Closing your accounts decreases your length of credit history, aka your credit age. Your length of credit history makes up 15% of your credit score. Each time you open a new account, it lowers your average credit age, which lowers your score.
If you have credit accounts you don’t use or are trying not to use, lock the cards up. Give them to a family member or put them in your safety deposit box. Leave the account open, but untouched.
This does three things.
- Keeps your debt under control
- Keeps your credit age higher
- Helps your total credit utilization rate if you have an unused credit line
When trying to raise your credit score, don’t think anything will happen overnight. It won’t.
Your credit score didn’t fall overnight and isn’t going to increase that fast either. The key is consistent effort. Consistently do all of the steps above, keeping your credit history as positive as possible.
Over time, your on-time payments, lower credit balances, corrected errors, and open but unused credit lines will help your core. You’ll likely see a small improvement initially, but over time, your credit score will steadily increase until it gets to the number you desire.