How to Improve Your Credit Score

Find out what it takes to increase your credit score.

You probably know that your three-digit credit scores — which are based on the information in your credit reports — can have a major impact on your financial life. Credit scores are used by potential lenders to determine whether they will grant you a credit card, auto loan, mortgage or personal loan, and on what terms. Insurance companies, utility companies, landlords and even potential employers might review your scores.

To get the best deals on credit and insurance products, you need a high credit score. Find out how to raise your score and start enjoying the perks of good credit.

9 Ways to Increase Your Credit Score

Improving your credit score is a perfect way to measure personal financial growth. Here’s are nine different ways to increase your credit score:

Learn: 20 Things That Can Mess Up Your Credit Score

1. Pay Your Bills on Time

The key factor in credit scoring is your track record for paying your bills on time. Late payments have a negative effect on your credit score, particularly if your accounts wound up in collections or you had to file bankruptcy.

The good news is your credit score won’t be penalized forever. The best thing you can do is to start paying all your bills, including medical bills and utilities, on or before the due dates. You won’t raise your credit score overnight, but paying on time is the most important thing you can do to improve your credit score. 

2. Check Your Credit Report

Your credit scores are based on the information in your credit report, so make sure it’s correct. The first step is to get a free credit report and credit score and scrutinize all the entries, including your name, address and Social Security number. Verify that all the listed credit accounts are your accounts and the payment histories are accurate. Subscribing to a credit monitoring service will alert you to changes in your score and report.

3. Dispute Errors on Your Credit Report

If you spot incorrect information in your credit report, check the dispute procedure on the credit bureau’s website to find out how to fix your credit score.

Repairing incorrect information can be a lengthy process. Be cautious of suspicious companies that promise to show you how to fix bad credit or how to raise your credit score quickly for a price. There’s no magic formula that can raise your credit score 100 points overnight.

4. Clean Up Old Collections

If you want to know how to boost your credit score, or even how to improve your credit score in 30 days, contact collection agencies to arrange to pay off your collection accounts. Negotiate with the collection agencies to get the derogatory information removed from your credit report once the debt is repaid, and see how fast you can raise your credit score.

5. Ask Your Credit Card Company to Raise Your Credit Limit

One of the most important factors that determine your credit score is your utilization. “Utilization measures how much of your available credit you’re using,” said Barry Paperno, who writes the blog at Speaking Of Credit and formerly worked as a FICO credit professional. “The lower this percentage, the higher the score.” 

You can get a higher credit limit by simply calling your credit card company’s customer service department and asking for a limit raise, said Paperno. You might also be able to request a limit increase on the bank’s website. Just be careful not to let a higher limit lead to higher spending.

Find Out: How Your Credit Utilization Rate Is Affecting Your Credit Score

6. Pay Down Your Credit Bills

Aim to keep your balance of each of your revolving credit accounts below 30 percent of their respective credit limits. “Paying down a high-balance credit card can lower your utilization by further opening that gap between your available credit and the amount you owe,” said Paperno.

“By lowering your utilization in this manner, there will be no downside, only upsides,” Paperno said. “Along with contributing to a higher score, paying down card debt also reduces the amount of interest you’re paying.”

7. Don’t Apply for New Credit Cards

Many applications for new credit generate an inquiry on your credit report. Inquiries are how potential lenders know you’ve been applying for loans or credit, and that attempt to get a credit card can stay on your report for up to two years.

Only 10 percent of your FICO score is based on recent inquiries, and the score only takes into account inquiries from the past 12 months. But multiple inquiries for credit cards can indicate a high-risk borrower. Car and mortgage loans are less problematic because credit scoring models treat multiple inquiries made within a short period of time as a single inquiry.

8. Keep Existing Accounts Open

The length of your credit history makes up 15 percent of your credit score. Several factors impact history length, including the age of your oldest account. Older accounts can improve your credit score by increasing the average age of your accounts. If you have old, unused credit cards with no balance, it’s best to leave them open as it can positively contribute to both the length of your credit history and your credit utilization rate.

Closing an account increases your credit utilization by narrowing the gap between your total available credit and the amount you owe. Whereas lower utilization helps boost your credit score, high utilization hurts it.

9. Understand Your Credit Scores

It’s a myth that you have only one credit score. There are several scoring models, the most common of which is FICO, and each model can have many different versions. FICO, for example, has separate versions developed specifically for auto lenders, credit card issuers and mortgage lenders.

Each of the credit bureaus — Experian, Equifax and TransUnion — has its own versions of FICO. You can get the educational scores for free, or purchase the scores lenders use for a fee.

Frequently Asked Questions About Credit Scores

Credit scores can be confusing. Here are answers to some common credit score questions you might have:

What Is a Good Credit Score?

What constitutes a good credit score depends on the model you use. Experian’s FICO scoring model considers scores of 670 to 739 to be good, for example, whereas good scores under the VantageScore model are 700 to 749. The higher the credit score, the better. 

How Long Does It Take to Improve a Credit Score?

If you’re wondering how fast can you raise your credit score, know that it depends on the reason your score is lower than you’d like it to be. Everyone’s credit profile is unique, so there’s no hard and fast rule about how long it takes to improve your credit score. But it probably won’t happen in a month or two, according to Experian. Start watching your credit report at least three months before you hope to finance a major purchase, like a car, to give yourself time to take whatever actions are necessary to improve your score.

Why Does Improving My Credit Score Matter?

Knowing how to increase your credit score can have a profound effect on your financial life. Any time you apply for a loan, credit card, apartment or home rental, or even a job, your credit score is being scrutinized. If you have a good credit score, you might have a better chance at getting that loan, credit card or even the job you applied for. In addition, your actions might benefit you in other ways, such as helping you pay off debt that’s dragging you down.

If you have bad credit, don’t expect to improve it quickly. The process takes diligence and patience, but it’s well worth the effort.

Up Next: This Trick Will Improve Your Credit Score and Avoid Late Payments