How Your Credit Score Works so You Can Improve It

November 14, 2018

3 min Read

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To understand how to improve your credit score, you need to know why it’s important. As GOBankingRates’ Jane Walter points out, your FICO credit score determines how much money you’ll be able to score for a loan and how much interest you’ll have to pay on that loan. So, if you’re planning on getting a mortgage, renting an apartment or buying a car anytime soon, it pays to have a high credit score.

Currently, the average U.S. FICO credit score hovers around 704 out of 850, with southern states reporting lower scores. But even if your credit score is below the national average, not all is lost. Here are four ways to increase your credit score.

Make a Habit of Checking Your Credit Score

Although you might not have a high credit score, you need to regularly check it. You can do so by visiting sites like Credit Karma and Free Credit Score, where you can access your credit score for free. Also, you can request a free copy of your credit report from Equifax, Experian or TransUnion once every year at AnnualCreditReport.com.

If your credit score is on the lower side, consider exploring the best credit cards for bad credit to help rebuild your score over time.

Make Your Payments on Time

Of the five things that determine your credit score, payment history accounts for 35 percent, followed by the amount you owe to creditors. Thus, it is crucial to make various payments, like credit card payments, on time. If you have trouble keeping up with your payments, try enrolling in your bank’s autopay system, which automatically makes your payment on time for you.

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Keep Your Credit Utilization Low

As Walter points out, it’s not necessarily bad to have several credit cards. Rather, it’s bad to have several maxed out credit cards. To keep your credit score in good standing, try to minimize the amount of credit you actually use. It’s better to have a high credit limit but only use a small portion of credit in the long run.

Have a Good Mix of Credit

If you only have one credit card, your chances of regularly using and charging that credit card will be high, which means that your credit utilization ratio will also be high. The higher credit card debt you have on one card instead of splitting it to be lower between two cards, the more this will negatively impact your credit score. In order to keep your credit utilization ratio lower, it pays to have more than one credit card.

Click through to read more about 30 things you might be doing that kill your credit score.

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