It’s a question that many people have on their minds as they begin to seriously consider their finances: how do I raise my credit score, or how do I fix my credit? Though credit scores may seem shrouded in mystery – how they’re calculated, which ones are used – consumer credit scores tend to follow a few common principles. In this post, we’re explaining some simple tricks to raise your credit score.
Raising your credit score can take time. After all, credit scores are a measure of how trustworthy of a borrower you’ve been over the years. The good news? You can get started on these credit tips today.
Let’s start with the basics on how to improve your credit score.
How to raise your credit score
Raising your credit score is important, but you might not have a solid idea of what exactly your credit score is. Don’t worry; it’s not as complicated as you might think. Your credit score is basically a measure of how reliably you pay back money that you’ve borrowed. There are two main models that credit reporting bureaus use to measure your credit:
The three bureaus that do the reporting are Experian, Equifax, and Transunion. Each of these bureaus receive information from various financial institutions you’re involved with, and that information is what determines your credit score. The more consistently you’ve paid off loans, kept your credit usage low, and stayed on top of all your financial responsibilities, the better your score.
Both metrics range from 300 to 850, with most scores above 700 considered good to great. If your score is below that — or significantly below that — it can be difficult obtaining a loan at a good rate, or even obtaining a loan at all. Here’s what you can do to boost your score if you do find yourself with a lower rating than you’d like.
Ask for (and receive) a credit limit increase
If you’ve been regularly making required payments on your credit card, you may want to try asking the credit card company for a credit limit increase. You wouldn’t necessarily want to do this to finance a purchase you otherwise wouldn’t have been able to make. But if your monthly balance is relatively steady, you could decrease your utilization rate (a good thing) by increasing your credit limit.
For those who may not know, the credit utilization rate is the amount of credit available to you that you’re actually using. It’s basically your balance divided by your credit limit. So, if you increase your credit limit and keep the balance the same, the utilization rate will be lower. And that can translate into how to improve your credit score.
Pay your bills on time
One simple way to get started building solid credit is to start paying bills on time. Among the many different sources of data that major credit reporting bureaus use to assess your creditworthiness, whether you pay for regular expenses on time is pretty important.
It’s not hard to see why: if you have a good track record regularly making rent payments, that probably means it’s more likely that you’ll be able to make regular payments on a loan.
The trick, however, is that you may need to connect your bank account to one of the credit reporting agencies’ services. If you’re curious, call or visit the website for Experian, Transunion, or Equifax to see whether you can have your regular bill payments factored into each of these bureau’s tabulation of your score.
- Pro tip: if you have a hard time managing your bills, make a central list where you itemize each bill you have — rent, water, gas, electric, internet — and what day each one is meant to be paid. Or, even easier, just download the Mint app, which can remind you about upcoming bills and keep track of the money you spend on bills each month.
Show you can handle different kinds of debt
It’s probably not a good idea to run out and take on additional debt for the sake of it, but if you’re in need of a type of loan you haven’t used before (say, an auto loan for a new car, or a personal loan to consolidate credit card debt) consider taking it on and make regular payments on it; you may see a bump in your score. Lenders want to see you can handle different types of debt, so adding another type of loan and paying it down could have a positive effect on your score.
Here’s an example. If you’ve been paying down student loans (generally, these fall into the “installment loan” category) but don’t yet have a credit card (generally, these fall into the “revolving credit” category), you could see a score increase just by opening that credit card account and paying off your balance regularly.
Open a new account and make on-time payments
If you need additional credit, opening a new account and handling it responsibly (making on-time payments on it, not borrowing more than you can afford) can have the effect of increasing your score. Remember, though, that opening a new account you can’t handle (where you miss payments and/or take on more debt than you can afford) will likely have the opposite effect: a score decrease. So, it’s a good idea to proceed responsibly.
How to keep your credit score high
Once you’ve got your credit score near where you want it, it’s important to do your best to keep it in good standing. By keeping up the habits listed above, you can ensure that your credit stays relatively stable. However, it’s good to note that, in some cases, credit can fluctuate.
Don’t be surprised if you see your credit score dip, then raise up again from time to time. For example, maybe one month, you use a higher amount of your credit utilization due to a few unforeseen expenses. This isn’t the end of the world, and with continued responsible debt management and credit usage, your score should recover.
In general, however, here’s what you can do to maintain a high credit score once you’ve got it.
Close accounts with care and caution
“I have too many credit cards” is something you may have heard someone say or even thought to yourself. And for many, that may be the truth. But having several credit cards, in and of itself, won’t necessarily lower your score.
Though closing credit card accounts may seem like it would boost your credit score because it’s simplifying your life or making things more organized, it can sometimes have the opposite effect. That’s because when you close an account, two things happen: (1) you lose the entire line of credit you had, which may decrease your utilization rate (see the 1st tip above) and (2) you’ll stop having that account continue factoring into the average age of your accounts. Typically, scores want to see you’ve held several accounts open and in good standing for a long period of time.
Here’s a big caveat, though: there are still plenty of good reasons to close accounts, credit cards or otherwise. Maybe you can’t afford the annual fee or the rewards just don’t make it worth it anymore. Or maybe you’re struggling with credit card debt and want to consolidate it into a personal loan. The important thing to remember is this: if there’s no good reason to close an account, it’s sometimes wiser to keep it open.
If you do want to close an account, however, don’t worry; the ding to your credit will likely be minor, and it’s likely to recover with time after continued responsible use of the other lines of credit you do still have open.
Stay on top of your personal finances with Mint
Your credit score is just one metric that helps you measure your personal finances. Maintaining healthy credit along with a well-kept budget, solid debt-to-income ratio, and steadily growing savings are all aspects of your financial wellbeing that are worth keeping tabs on.
Mint allows you to do that. By aggregating your financial information — including everything from investments to upcoming bills — into one convenient dashboard, you can have a bird’s-eye view of your financial health. Knowing when rent, bill payments, credit card payments, and loan payments are due each month can help you raise your credit score and stay on top of it while also knowing how much you have leftover to budget for other areas.
Remember, there’s no one magic bullet to build your credit score fast. The above credit tips are just some of the ways you might raise your credit score over time and keep it high. But remember: lasting, meaningful score increases come from showing consistently strong credit habits. In other words, don’t forget the fundamentals: pay your bills on time, don’t take on more debt than you can afford and be careful about applying for too many accounts over a short period of time.