Because your credit score is an important piece of your personal financial puzzle, you should make every effort to improve it if it’s less than stellar. Lenders use this three-digit number to decide whether to give you credit — and at which interest rate and terms. In addition, insurers, utility companies, cell phone companies, employers and even landlords use credit scores to determine your dependability.
You might have a hard time getting credit if your score is low. And you’ll likely pay higher rates for credit — if you can get it — because you are considered a risky borrower. You don’t have to settle for a low number — find out how to build credit in 2018.
Where to Find Your Credit Score
The FICO score, which ranges from 300 to 850, is the score lenders use most. You can get your credit score for a fee from myFico or from one — or all — of the three major credit reporting agencies: Equifax, Experian and TransUnion. In addition, several credit card companies provide cardholders with free access to their FICO scores. You also can get a version of your score for free from GOFreeCredit.com, which offers a TransUnion score when you sign up for a seven-day trial to use its credit-monitoring service.
How to Fix Your Credit Score
“There are many strategies to increase your credit scores — some with limited effectiveness and others with much more,” said John Ulzheimer, a nationally recognized credit expert who worked for both FICO and Equifax. “The first thing to do is to be realistic with your expectations.”
For example, if your score is low because you filed for bankruptcy this past year, there isn’t much you can do except wait, because it will stay on your credit report for seven to 10 years, Ulzheimer said. But if your credit score drops for one of many other reasons — such as racking up revolving credit debt over the holidays, opening several new credit card accounts or making other mistakes — you can take these steps to improve it. Here are eight ways to raise your credit score:
1. Check Your Credit Report
Each year you can get a free copy of your credit report from each of the three credit reporting agencies at AnnualCreditReport.com. Your score is based on information in your credit report, including:
- How much you owe
- Your payment history
- The type of credit you have
- The number of accounts you have open
- How long you’ve been using credit
When you review your report, make sure all of the information is correct because any error can affect your score. If you find a mistake, contact the credit bureau or reach out to the business that provided the information to the credit bureau so you can dispute any inaccurate information.
In addition, your score might vary among the credit bureaus because each uses a different formula to calculate scores — and the reports might contain different kinds of information about your credit — according to AnnualCreditReport.com. The average FICO score in the U.S. is 695, according to FICO’s most recent data. Lenders have their own criteria for determining a good score, but as a guide, FICO classifies 740 to 799 as very good and 800 or above as exceptional. In short, the higher your credit score, the better.
2. Avoid Making Late Payments
Payment history accounts for 35 percent of your FICO credit score, according to myFICO. “The best way to avoid a low score is to never give any creditor a reason to report you as being delinquent on your obligations,” Ulzheimer said.
You have 30 days after the due date before a lender can report you to the credit bureaus for being late, Ulzheimer said. To avoid paying bills late or missing them altogether, use an app like Mint Bills to alert you when due dates are approaching or set up automatic payments.
If your score has slipped because you’ve made late payments in the past, making timely payments going forward will help boost your number. Additionally, if you were late making a payment just once, you can ask your credit card company or lender to reach out to the credit bureaus and remove your delinquent payment from your credit report.
Find Out: Who Looks at Credit Scores?
3. Pay Off Big Credit Card Balances
When you rack up debt during the holiday season, paying it down in the new year can improve your score. “One of the fastest ways to bump up your credit scores is to reduce balances on credit cards,” said Gerri Detweiler, education director for Nav, a credit resource for businesses.
Detweiler said debt usage accounts for up to a third of your credit score. “Some consumers can see their credit scores improve by 10 to 50 points or more in as little as a month just by reducing their balances,” she said.
4. Avoid Opening New Credit Card Accounts
Even if you think you need to get another credit card to buy something, think again. New credit counts for 10 percent of your credit score, and opening a new credit card can affect your credit. When you apply for new credit, the lender makes a hard inquiry on your credit report, which might shave a few points off your score. And if you have too many accounts open your score can get dinged, too.
Learn About: 27 Things That Can Mess Up Your Credit Score
5. Avoid Closing Credit Card Accounts
Although you might want to close a credit card account that you paid off recently to keep yourself from using it later, it’s not always the best idea. Credit-scoring models like FICO compare your total credit card balance to your credit limit to come up with your credit utilization ratio.
The amounts you owe on your accounts count as 30 percent of your overall credit score. The more credit you use in relation to your credit limits — which can occur if you close an account — the lower your credit score will be.
For example, say you have two credit accounts, one with a limit of $1,000 and a balance of $800 and one with a limit of $2,000 and no balance. If you close the card with the $2,000 credit limit, you’ll reduce the amount of credit you have to $1,000 instead of $3,000. Although your credit utilization ratio was 26 percent before you closed the account, it will increase to 80 percent after you close it. Keep in mind, too, that the length of your credit history also accounts for 15 percent of your FICO score, so closing an account can hurt your average credit score age, too.
6. Pay Credit Card Bills Early in the Month
Even if you start paying your credit card balance in full each month in 2018, your score might not rise as much as you expect. That’s because making payments at the end of the month might work against you.
“Most issuers report balances when the billing cycle ends before you make your payment,” Detweiler said. “That means the reported balance may be higher than the balance you end up with after you’ve made your payment. You can make an extra payment before the billing cycle closes to reduce the balance that will be reported to the credit reporting agencies.”
7. Use a Personal Loan to Consolidate High-Interest Debt
You might be able to improve your credit score by taking on new debt to pay down existing debt. “If you can’t afford to pay down your high credit card balances, another way to boost your score can be to use a personal loan to consolidate,” Detweiler said.
Opening a new line of credit can lower your score, according to myFICO. A personal loan for a fixed amount, however, is typically reported as an installment loan and is not included in the credit utilization ratio calculation, Detweiler said. Transferring debt to a personal loan can often improve your credit utilization ratio — and your credit score.
8. Get Tax Liens Off Your Credit Report
Fail to pay your taxes and the federal government will file a tax lien against you. “Tax liens are one of the most seriously negative types of information on credit reports,” Detweiler said. “Normally, they stay on credit reports for seven years once paid, and indefinitely if unpaid.”
Paying your tax bill in full is the best way to get rid of a tax lien. If you can’t afford to pay all of what you owe, however, take advantage of the IRS Fresh Start program, Detweiler said. By meeting the qualifications, you might be able to get the lien removed from your credit report even before your tax bill is paid off, she said.
“This can raise your credit scores by 50 to 75 points or more,” Detweiler said. “Some taxpayers have found this to be a relatively fast process — a month or so — while others have reported it took a few months.”
How to Increase Your Credit Score by 100 Points
Increasing your credit score by 100 might or might not be possible depending on various factors, such how high your current score is. For example, if your score is 760 and the top credit score is 850 you wouldn’t be able to increase your score 100 points.
The two most important things you can do to improve your credit are to make payments on time each month and keep credit balances as low as possible, according to Experian. These factors combined account for 65 percent of your credit score. Other things you can do include:
- Bringing past-due accounts to a current status
- Paying off debts like collections, charge-offs, tax liens and judgments
- Reducing balances on revolving credit card accounts
- Avoiding applying for new credit unless you have no other options
Up Next: 8 Ways to Get an 800 Credit Score
Cynthia Measom contributed to the reporting for this article.