6 Most Effective Ways to Build Your Credit Score

Vladimir Vladimirov / Getty Images

If credit is the gateway to more financial and purchasing power, then your credit score is the key that opens that gate up. Lenders and credit card companies use your credit score to determine your ability to pay off loans and card balances.

A credit score is a number between 300 and 850, and it’s calculated based on various aspects of your credit history. A good credit score is generally considered to be 670 or higher, depending on the credit-scoring model. Poor scores typically range between 300 and 579 — well below the national average FICO Score of 714.

You’ll need a good credit score to get a home or car loan and also snag the best interest rates. The way to get there is to ensure you meet the expectations of creditors.

One positive step you can take is to check your credit score regularly to ensure that it aligns with your credit activity. You can do this by visiting a free credit scoring website, consulting with a credit counselor, contacting your credit card provider, or contacting financial institutions that provide the service.

For example, Chase Bank lets you check your credit score through its Chase Credit Journey program — whether you have an account with the bank or not. The service is free and sign-up is quick and easy on Chase’s website. You’ll get score updates each week, but you can also check your credit score anytime and as many times as you want. Chase Credit Journey also offers many more free services, including identity monitoring, credit activity alerts and educational tools.

Understanding Your Credit Score

It’s important to understand the factors that go into determining your credit score. FICO and VantageScore, the two most popular credit rating services, each have their own model that weighs several components of your credit history, but both consider the same basic factors.

Here’s a look at how VantageScore weighs the six main categories that it considers:

Payment History (About 40%)

Your payment history lets lenders and other creditors know how likely you are to make your payments on time. So it makes sense that it’s the most important factor in determining your score. If you miss payments or make them late, your score will take a hit. Conversely, building a record of on-time payments can give your score a boost.

Credit History Length and Credit Mix (About 21%)

This category tracks how long your credit cards and other lines of credit have been open, and it also takes into account the different types of credit you have. Lenders weigh the average age of all your lines of credit when determining your credit score. If you have established a long history of good credit and you hold a diverse mix of lines of credit, your score will benefit.

Credit Utilization Ratio (About 20%)

Your credit utilization ratio is the percentage of the amount you owe vs. your total credit limit across all cards and loans. For example, if you have a total balance of $1,000 across all of your credit accounts and a total limit of $10,000, your utilization is 10%. It’s best to avoid pushing your credit utilization above 30% to keep from hurting your credit score.

Total Balances and Debt (About 11%)

Carrying a large amount of overall debt can have a negative impact on your credit score, especially if your debt-to-credit ratio is high.

Recent Credit Behavior (About 5%)

Lenders want to know how many new lines of credit you’ve opened recently. Whenever you open a new credit account, a “hard” inquiry will be added to your credit report that can temporarily lower your score. It is better to build your credit limit over time to ensure you don’t hurt your credit score.

Available Credit (About 3%)

This has a minimal impact on your score, but lenders like to check that you’re not opening more lines of credit than you need.

Now that you know how credit scores are determined, it’s time to take proactive steps that can help you push your score higher.

6 Most Effective Ways to Build Your Credit Score

1. Pay Your Accounts on Time

Perhaps the most obvious way to build your credit score is to pay your debts when they are due. Paying them late only hurts your score — and paying late regularly can send your credit score plummeting in a hurry. If you have a hard time keeping up with when your credit payments are due, you may want to set up automatic payments for your accounts or alerts that remind you when a payment is due.

You may also want to try keeping a bill calendar or log will help you to avoid missing payments. Keeping a monthly budget can also help you organize your payments as well as find areas where you can cut costs if late payments are due to insufficient funds.

2. Review Your Credit Reports and Scores

It’s important to make a habit of checking your credit reports and scores to ensure nothing is on there that shouldn’t be on there. Keep an eye out for inaccuracies and signs of identity theft and fraud. Also, check to see if you have any unpaid balances or accounts that have gone into collections.

With Chase Credit Journey, you can check your score free of charge — even if you aren’t a customer with the bank. The service also provides insights about your payment history, credit usage and other factors that contribute to your score.

3. Pay Down Revolving Credit Balances

One move that can improve your credit score is to pay more than your minimum payment each month on revolving credit accounts, such as credit cards. Reducing your revolving credit balance lowers your credit utilization ratio, which also gives your credit score a boost. If you can pay your credit card balance in full each month, you’ll also avoid interest charges.

4. Maintain a Low Credit Utilization Ratio

Along the same lines as paying down your revolving credit debt, you can also build your credit score by keeping your credit utilization rate at or below 30%. Beyond reducing your spending, you can also lower your utilization rate by asking your credit card company for a credit limit increase.

5. Raise Your Credit Limit

Raising your credit limit improves your credit utilization ratio as well. There are a couple of ways to do this: Ask for an increase on your current credit cards or open a new card. Just be aware that when you apply for a new card, the issuer or lender will have to pull your credit report. This results in a hard inquiry that can temporarily ding your score.

5b. Open a Checking Account

Many people aren’t in financial position that allows them to raise their credit limit. Although a checking account won’t have any direct effect on your credit score, it is something lenders can look at when determining whether to give you a loan. If you don’t already have a checking account, this can be an important step to take to start showing that you’re financially responsible.

6. Keep Old Accounts Open

Although it might be tempting to close credit accounts you no longer use, you’re better off keeping them open in terms of your credit score. Keeping the accounts open will help maintain the age of your credit history. While closed accounts can remain on your credit reports for up to 10 years, they don’t carry as much weight as positive open accounts when it comes to your credit score. That’s because lenders are more interested in how you’re handling current lines of credit than they are in your past activities.

More From GOBankingRates

• 9 Bills You Should Never Put on Autopay
• 10 Ways To Build Wealth Fast
• 22 Side Gigs That Can Make You Richer Than a Full-Time Job
• 6 Top Tips for How To Turn $1,000 Into $10,000

Share This Article: